Haverford, PA · Member since 2017 · 9 posts · 1 vote
Hi my name is Brian, this is my 2nd post. I am just starting out in the Philadelphia suburbs, specifically Delaware county. I have a new construction opportunity that I'm preparing for but first what to do with my current home. I have about 50% equity and I've been working on a refi that will bring my PITI down to just cover its costs with maybe 20$ left over. I have used the blog posts and rental calculator to try and make sure that I have realistic expectations on the month to month costs. Should I think of selling it to get the cash out for my new construction venture or keep it and get a heloc to fund the new construction. It wouldn't cash flow but it would pay for itself and I would avoid closing costs. Any advice would be appreciated, thanks.
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
9y
Be very careful as refinance and HELOC can require you still live in the property and are not planning on moving or selling within a certain period. Also, on a HELOC, it's my understanding that the terms may allow lender to cancel it if it becomes an investment property, so understand what you are signing if you go that route. It it were mine and it wouldn't cash flow, then I'd rather sell. It's much easier to sell as an owner-occupied than with tenants in place, so unless it was a good investment you'd like to hold for years (which to me means decent cash-flow), then sell.
Developer · Indianapolis, IN · Member since 2012 · 259 posts · 129 votes
9y
Hey @Brian Loftus. Where will you live if you sell the house? Also, how long before you make your money back from the construction venture? (Just a few years or 10 years)? What's the typical appreciation in your area if you hold onto the house longer term? If its a short term project then just do the HELOC and use it as your personal line of credit for this and other deals. If it's longer than you'll need to consider the questions above in more detail....plus there is more of a chance maintenance costs will increase the longer you hold onto the home.
Haverford, PA · Member since 2017 · 9 posts · 1 vote
9y
My refi is actually a harp loan, From what I understand there are no strings attached. The refi would allow me to get my monthly payment to $1080 PITI , now with allowances for vacancy ($150), maintenance ($150), capex($165), propmgmt ($150) that gets me to $1695. SFH in my area with similar amenities go for $1600-$1800. That puts me right there, a bit tight. Hard to believe I have almost %50 equity and still can't get it to cash flow, very high taxes! The idea is to use a heloc to help build a new construction home on a plot of land that I own free and clear. Once I have the new home built I can refinance it to pay off the heloc and other construct loans and live in it for 2 yrs.Then convert the first home to a rental or sell it. Both homes are in the same town and have great schools are in desirable locations. Taxes are the biggest downside to both properties
Banker · Philadelphia · Member since 2009 · 2k+ posts · 629 votes
9y
Hi @,
Welcome to BP!
The answer is 'It Depends'
Depends on the following;
* Your new DTI (Debt to Income) based on the new HELOC or Cash Out (New Mortgage)
* Seeking Fix and Flip, Cash Flow Properties Etc. This will be calculated by the new debt and what your are participating toward it and what can be logically carried.
* What is the combined income of your household will back into what type of future buy-ins you can facilitate.
Haverford, PA · Member since 2017 · 9 posts · 1 vote
9y
Thanks Joe. Definitely food for thought. I'm looking at the equity that would be trapped in the SFH. Just for a hypothetical, if the value of it was $230k and I did a cash out refi for 80% of the value I'd have a $185k mortgage to pay. The thing would never cash flow. I'm not sure it would cash flow now and I have 50% equity in it. My question is, is this a function of my submarket, region or SFHs in general? I've heard Brandon Turner talk about the BRRR strategy and I'm just not sure it could work in this area, maybe I'm not seeing it correctly. Anyway thanks for the earlier thoughts.