Continue to live in my SFR vs Refi and 203(k) first MFR

6 Replies

I currently own a 3br/2ba SFR in a desirable neighborhood of the Kansas City, Missouri area.
Purchasing for 127k in 02/15, financed at a 3.875 rate, currently about 120k left on the note.
Since our purchase, home values have risen, with the exact same floor plan right next door with LESS upgrades (ie. full privacy fenced back yard, full LED lighting throughout, underground drainage for the gutter system, etc.) selling two months ago for 185k.

My wife and I are currently studying up and building mentor relationships, with intention of purchasing our first investment property within the next year.

At this point, I am strategizing the best thing to do with my SFR.

1. The route I am most interested in, is to refi it and rent it (about 1.5k/month) and then house hack our first fourplex.

2. The other option would be to continue to occupy the SFR and purchase the right fourplex through traditional means and down payments (for which we have the necessary funds).

3. Another option (that I'm not seeing much long term incentive in) is to sell the SFR.

So at this point, I suppose I'm asking the collective...
Any obvious hitches in choice 1?
Anything you would do differently?

Thanks for reading and helping a couple of noobs :)

The only obvious hitch to choice 1, in my opinion, is where will you be living while the SFR is renting? One way I think could be an option is to sell the SFR and use a 1031 exchange. This way you defer the taxes and you can buy a duplex or fourplex like you mentioned.

This post has been removed.

I would go with option 1. If you cash out refi on your home, you might get 80% of $180k (if your home is valued at 180. That is $24k cash to you. That is enough for the 3.5% down FHA. Maybe even have left over for reno. Buy something under market value and refi your new property again. BRRRR.

@Quinten Sepe , Don't forget that if you sell that that former primary residence anytime within the three years after you move out you will still be eligible for the primary residence exclusion and will only owe the depreciation recapture from the time you put it into service.  Even if the appreciation outstrips the exclusion you could take advantage of both the primary residence exclusion and 1031 the remainder.  

Free appreciation and cash flow for three years is nothing to sniff at.  Just pay real close attention to that 5 year period.

Thanks @Kelli Huang and @Dave Foster for the replies. BRRRR is the strategy we're after. So the affirmation is good to hear.
Additionally, awesome points on the primary residence exclusion. My friend/mentor had been recently talking to me about capital gains and related exclusions. I imagine we might leverage that in the future!
With the SFR I am referencing here, we might end up moving back to occupy it in the future once we have kids. So I don't realistically see us selling it. It's in a highly sought after area and is one of only a handful of newer builds amidst a sea of much older homes.
Thanks for all of the great input!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here