Hi I am pretty new to Real Estate investing. I bought a duplex last November with the intent to house hack. I'm living in one unit and renting out the other. I did an FHA loan with a traditional 30-yr mortgage to get my property. I ended up putting a good amount of money into it to get it ready for renters. I am looking for the best way make my next move, and was thinking I might try the BRRR method. I put in about 40k at this point and I believe the property should appraise for about 220k-230k. Any advice? Is that even a viable option since I started with a 30-yr loan? Help!?
Sounds like you're doing fine to me! I know that $40k hurts though, and I'm sure it's wayyy more than your original budget. Same thing happened to me on my house hack.
You missed a very important number in your post: how much do you owe on the mortgage? If you owe $100k and now it's worth $200k, for example, then refinancing and making it a BRRRR is definitely the way to go! But if the margins are a lot smaller, it might not be worth it.
If you have enough equity in the property, then it is definitely a viable option, even with a 30 year loan. You can pay that off anytime you like, and there should be no prepayment penalty on an FHA loan. So don't worry about that - if you do a cash-out refi, you can put that money straight to paying off the first mortgage in one full payment.
@Clark Kirkpatrick Yes, exactly. I still owe about $180k on the loan.
Unfortunately it looks like your money is stuck in the property. I believe you can only cash out refi up to 80% ltv on your primary (likely lower on a 2 unit). So at a valuation of $230k, there’s no cash to be pulled out. And if you sold it, after closing costs you’d probably be losing money as well.
But if you bought well and it’s a good house hack, you should be able to save a good amount of money while your tenants pay your mortgage.
@Eric G. Yeah that's what I was afraid of lol. I was considering adding a unit to speed up paying down the loan, but that would cost me about $15k not including whatever it costs to get zoning. I think I'm gonna just let it sit and pay it down for now. Maybe work on buying a single home to BRRR. Thanks for the advice! I appreciate it.
Yeah its a little late to do a BRRRR, but given the scenario you describe you probably could have done a 203k loan and tacked on the additional $40k to the loan value for a rehab budget. Then you only would have had to come out out pocket 3.5% of the total $220,000, maybe you can do that with your next one?
Did you get an appraisal report from your lender when you bought the house? Does that support that support the $180,000 purchase price or the $230,000 value? It's tough to get the bank to adjust the appraisal that much in such a short period of time but if you had equity initially then that could go a long way to help secure a line of credit. It doesn't hurt to ask the bank about but the numbers are probably too close for it to be worth paying for a new appraisal.
It sounds like you're in a good place. I think you're right about just sitting on it for a few years and see how everything plays out.