Cash out refi and rent or sell current house?

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Cash out refi and rent or sell current house?

Tony Iaconelli
Aurora, IL · Member since 2014 · 30 posts · 8 votes

So I’m unsure of what I should do moving forward and am looking for some advice. I apologize in advance for the long post. 

Currently in the process of purchasing a small multi family (2-4) units using a VA loan. I own a home currently that my wife and I purchased 2 years ago for $172,000 using a VA loan. Due to the VAs loan entitlement limits I can purchase up to $312,000 without a down payment.

My home has gone up in value quite a bit in the last 2 years and I believe (will obviously get an appraisal to know for sure) it is worth $205,000. The VA allows me to do 100% cash out refi. I can rent my home for roughly $1700 per month. Right now my home meets the 1% rule, but after refinancing it my payments would obviously increase as well as my current interest rate.

Option #1

Purchase a small multi to house hack and rent remaining units and sell my current house and save the profits. Live in for a year per the VA's requirements and repeat.

Option #2 

Purchase a small multi to house hack and rent remaining units and do a cash out refi on my current home and save the money for future down payments and rent my home even though it will be below the 1% rule. Repeat the process after one year. 

This will be my first deal so I am nervous. Option two sounds great because I can potentially pull 20-40k equity out of my home depending on what it gets appraised at but then the numbers won’t make sense when rent it. Any advice would be much appreciated!

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  • Seth Ferguson
    Rental Property Investor · Member since 2019 · 407 posts · 267 votes
    7y

    Hi @Tony Iaconelli

    I'm a proponent of refinancing instead of selling a property. As long as it services itself, even with marginal returns after a refi, you're much better off having it than not over a longterm hold. Take the cash from the refi and get another property.

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  • Tony Iaconelli
    OP
    Aurora, IL · Member since 2014 · 30 posts · 8 votes
    7y

    @Seth Ferguson thanks for the response. It definitely makes sense to keep. 

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Tony Iaconelli, have you run the numbers on your current home as rental after a refi? I'm not confident that it will cash flow well, if at all, especially if you have to pay PMI. You don't want to be in a spot where you're barely making any money and risk a big CapEx item or missing a month's rent due to turnover puts you in a bad spot.

    I'd sell, hold on to the cash and house-hack your way into a 4-plex. 

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  • Tony Iaconelli
    OP
    Aurora, IL · Member since 2014 · 30 posts · 8 votes
    7y

    @Jaysen Medhurst that’s my concern. If the refi raised my monthly payment 200-300 a month it would cut it a little to close for comfort. In terms of capex (if I did decide to keep it) I would use some of the money from the refi to update the furnace and A/C as they’re both over 30yrs old. The roof is brand new. Appliances as well. So I don’t think I would have many big ticket items that would need to be replaced, but I say that now... 

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