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Kahi Jelf
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First investment property advice

Kahi Jelf
Posted Feb 27 2024, 08:21

Hi everyone, still pretty new to the investing game. I currently have a home that i’m living in and now have an opportunity to buy my first investment property. The owner of the home is from a family friend, parents past away and kids just wants to let the property go. So I asked if i could buy it and now it’s a verbal commitment. So as of now i paid off all my dept and putting cash aside. I don’t have enough for a down payment but i do have quite a bit of equity in my home. looking for some insight on how i can get a low down payment or should i use my equity, plus funds to fix property. 

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Jason Wray
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Jason Wray
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Replied Feb 27 2024, 11:10

There is a simple solution - just do a cash out refinance. Rates have dropped a bit and then went back up last week due to some junky CPI index data but will start to come back down based on upcoming market reports. You will more than likely get a higher rate then what you have now but its a simple short term loan that you can refinance in 12 months to lower the rate when rate drop next year (which they will).

Use the cash for the DP but I would also advise taking out just a little more as a "What if factor" to cover any unforeseen issues or last minute repairs. If you do not use it simply make larger payments over 6-12 months to lower the overall interest and loan balance.

There is always the Heloc path but those can gett you into trouble and have restrictions like shoter amortization, Prepayment penalties, interest only, (Can create bad habits of low payments) which causes a standstill balance. Cannot use a HELOC for assets and cannot be used as PITI reserves.

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Kahi Jelf
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Kahi Jelf
Replied Feb 27 2024, 11:13

I would do that if interest rates were actually low. my current interest rate is 2.5% so i don’t think i would want to give that up.

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Jason Wray
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Jason Wray
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Replied Feb 27 2024, 11:32
Quote from @Kahi Jelf:

I would do that if interest rates were actually low. my current interest rate is 2.5% so i don’t think i would want to give that up.


If your rate goes up to say 6.75% thats a 4.25% increase on the overall loan.  Depending on how much you pull out your Heloc the rate will be between 9.75% to 12% on a 15-20 year loan.  It all depends on what you owe on the first mortgage to calculate the difference payments.  In most cases even with the increase in rate its worth the refinance.  It's shown that over 85% of investors who take out a Heloc refinance to consolidate the heloc into their mortgage in 3-5 years.

As a Banker I tell people every day "Do not" let a low first rate stop you from buying more properties to build more doors, which builds more passive income.  That first rate increasing is allowing you to grow your wealth it will always balance out in the long run, but can be speed up with a few tricks.  

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Michael K Gallagher
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Michael K Gallagher
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Replied Feb 27 2024, 11:42
Quote from @Kahi Jelf:

Hi everyone, still pretty new to the investing game. I currently have a home that i’m living in and now have an opportunity to buy my first investment property. The owner of the home is from a family friend, parents past away and kids just wants to let the property go. So I asked if i could buy it and now it’s a verbal commitment. So as of now i paid off all my dept and putting cash aside. I don’t have enough for a down payment but i do have quite a bit of equity in my home. looking for some insight on how i can get a low down payment or should i use my equity, plus funds to fix property. 


 The simplest way in my mind would be to purchase the new place as a primary residence, get a low downpayment or rehab loan, and then rent it.  if you can manage to live in it and rehab it over time, then if you live there 2 of the last 5 years prior to selling it the gains are tax free up to a certain amount.  Its slower but very powerful strategy.

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Kahi Jelf
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Kahi Jelf
Replied Feb 27 2024, 11:56

i agree! That is what i was planning, I guess now is how should I get the funding. should i use my heloc then refinance it when i rehab it then pull it back out to put back in my heloc? or find funding somewhere else? thank you 

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Joel Bongco
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Joel Bongco
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Replied Feb 29 2024, 13:27

Aloha @Kahi Jelf - I'm in Honolulu.  Please let me know if you need  assistance and I can help you with options.  Mahalo!