Upgrade primary residence (partial rented) now or wait d/t market
I am stuck at a what to do, looking for some unbiased opinions. I have a 3 story townhome in Denver worth $440,000 with $250,000 left on my loan (2.5%, 15year. $2300/m total payment). I am currently mid-term renting the condo while out of state for work bringing in $3000 a month ($500cf/m after utilities). I am considering upgrading to a nicer 3 story townhome in the 600-700k range. Ideally paying 3k-3.5k/m mortage on 30y @ 5.8% with the intention to refinance down the road if rates improve. I believe I could still rent it out midterm for 4k a month, basically being the same cash flow, but a much different loan. It is still my primary and I live there sporadically, will be back full time in less than a year.
My question is does this make sense to do now or should I wait to see how the market moves. I believe that it makes sense to make the move now regardless of the market since I can cover the expenses with my income and down the road in Denver this should be a $1M property. I have worked out all the numbers I just am looking for any insight or opinions. I am new to real estate investing so trying to learn and manage risk! Love the community, thanks for your help!
Hey @Luke Stewart, I think this is a really cool situation to be in! Either way you look at it, I think it is a win-win scenario. You either keep a great property that cashflows and has a ton of equity, or your upgrade it to a better property that continues to cashflow.
I think your best choice is totally based on your goals. If it is simply to maximize profits, holding your property and pulling cash out doing or doing a heloc and buying other properties may your best route. If you just like the idea of a better spot that will appreciate in the long run, and you get to enjoy living there, there's nothing wrong with that either!
As far as waiting for the market to move - I'm not sure exactly what you mean, but I wouldn't bank on prices going down. We have seen the market cool here in Denver over the past 2 months, but I and a lot of people smarter than me, think home prices in Denver will, at worst, go to a nationwide 30 year appreciation rate of 3-4%.
Regardless it sounds like you are in a great spot and have options which is always a privilege! I hope it goes well for you!
@Ryan Williams I appreciate your response. I have an excellent first loan so it makes me want to keep my primary residence. Especially since I know what it can produce in terms of cashflow. I am in the process of buying a "second home" loan and am really focused on that to be done by the end of the year but started looking into rolling the equity and wanted some other opinions. I am new to this and I keep saying cash flow, cash flow, cash flow and that will make buying a nicer property down the road that much easier.
I guess when I say "market moving", I am more concerned with housing prices continuing to rise as I do not see a dip coming to Denver. I just realized that I could upgrade my property and got nervous that if I decided not to do it then in a year I may not be able to afford the properties that I could right now. Just more fear than anything. But I keep reminding me my first mortgage is so strong that I really shouldn't touch it.
I think I am gonna give it time, focus on the second home loan on a condo in Chicago and then come back to it in a year maybe with a Heloc.
@Luke Stewart you just described what so many homeowners are likely experiencing right now with interest rates being double what they were last year, in many cases. It sounds like you know the right answer for yourself and maybe hanging onto the existing townhome/mortgage might be best just from a monthly cash flow standpoint, right? At the same time, a potential $1M possible ARV down the road also sounds very appealing and I wouldn't be surprised if Denver continued to appreciate rapidly as it has in the last decade+. I believe we will still continue to see the demand here, despite rates and market conditions. What a great position you are in, though, as @Ryan Williams echoed above. It's always a matter of managing risk in this industry and that ever elusive crystal ball is just not ever easy to grasp. I love how you are utilizing the midterm rental option in either scenario. Now is a good time to upgrade to a nicer home if you can afford it! I say, go for it if you can manage the monthly mortgage! I believe you will see big gains in equity for a nice property in the Denver metro. Good luck on this and any prospective future deals!
@Rosalie Borja I appreciate your thoughts on this. I am leaning towards keeping my primary but I also am going to discuss this with my realtor and lender to see what they are thinking. I am currently out of state for work and I also am a little uneasy about selling and buying all at once while out of state. I see them both as good moves but I also know that the upgrade path comes with more risk simply because of the higher mortgage payment. Learning to manage risk is key, and I feel like getting my second home complete seems like a smart move before I jump into this. That being said, I'm gonna talk to my team and consider all options. Thanks for your response!