Hi!
I would love to get the ball rolling on investments- either fix/flip or rental units. Here Is our scenario:
We live in Southern California in a historical home (almost zero property tax) and very well protected neighborhood from any decline in value.
We purchased for 575k with lIttle money down and now it appraised for 775k based off market goIng up and a back house we fInIshed (and rent out now). We dId a cash out refI to pay for backhouse and owe 589k on house.
Should we sell to make that almost 200k and roll into next primary (no investment) or stay put and try to pull more cash out for a rental or flip. Keep in mind having our mortgage payment go up in refi is not ideal.
Sounds like you got yourself a pretty good situation. Got some equity and now have a back house for additional rental income. I am not a big fan of cash out refinances when you currently have a large loan of $589k compared to the value of $775. If your loan balance was much lower say $200k, I would pull cash out. In your case, you are going to leverage more debt to get more debt. Sell and find a primary home that you can add value to.
Hi Chad, if what you say is true regarding how well protected the neighborhood is from any decline in value, I want to say you should hold it - at least for a couple years while you purchase rental properties.
Now, refinancing now vs. later is that while the rates now are still decent, they are slowly going up. You can also sell the house in a few years when you have used the cash on buying rental properties. That way you wouldn't have to pay more on your mortgage payment and sell benefit from the appreciated value of your house.
It really depends on what kind of rental properties and where you are planning to buy. If it's in Southern California, then it might help to have that extra cash from a refinance..
I would advise selling if you are prepared to downsize to concentrate on investing. If you are not willing to do that then I would say that investing is not a high enough priority and you should probably just stay put and be happy as you are for now. If having 200K sitting doing nothing is OK by you then investing is definatly low on your priority list. I would not necessarily advise remortgaging, based on possible market adjustments in the future, but keep in mind your increased mortgage would be more than compensated for through investing the money.
Their are no future guarantees and there is no such thing as "protected". That is false security to the max.
@Derek L. Thanks- what about HELOC to buy a rental? Thoughts there?
Or maybe we just stay put in home and look for hard money lenders for investment properties.
@Derek L. Thanks- what about HELOC to buy a rental? Thoughts there?
Or maybe we just stay put in home and look for hard money lenders for investment properties.
I would prefer a HELOC over hard money, if you have equity to use to take one out. HELOCs have lower interest rates and lower closing costs than hard money loans. And once you have the line of credit, you can reuse it for as long as the term is set for. This is especially great if you buy rental properties with cash, rehab and then cash out refinance to repay the line of credit (essentially BRRRR strategy) and move onto buying your next property.
I have one taken out on my primary residence and been using it to supplement the cash I use to buy rental properties. It's been working out well.
I don't like pulling money out with a heloc either. In this scenario, you will be leveraged the same amount but now with a revolving rate credit line. Not a good position to be if interest rates were to rise and you have an adjustable loan. It would be a different scenario if your loan amount was much lower but you would be overleveraged in my opinion.