So I am looking for guidance with regards to a new opportunity that has come up and not sure what I can do, should do, or if some of my thoughts are even possible financially. First, I own a primary SFH with an FHA mortgage here in Austin and it looks like my wife and I will be moving towards New Braunfels/Schertz TX area due to a new job opportunity. That being said, I am wanting to take the next step in REI and am considering some possibilities.
Option 1: Sell my home which has about $50K in equity before selling expenses hit and put what I have left towards a new home.
Option 2: Rent my SFH for approx. $400-$600 cash flow/month and refinance to remove FHA and look to house hack a Duplex using and FHA or 203K. This is my ideal thought but may not be a fit for my family as I have a wife and daughter and we will look to have a 2nd child next year.
Option 3: Rent my SFH but take out an HELOC or HELoan with less monthly cash flow to put towards a new primary residence in New Braunfels/Schertz and try to increase value quickly in order to refinance and pay back the HELOC which would then be re purposed towards a Duplex, Triplex or fourplex to have an additional property and hopefully generate cash flow.
My question is, does anyone have any experience with anything similar to my option 3? Is this possible from a financial/legal standpoint? We won't be making the move until after the holidays or maybe even later than that so I am trying to get a better idea on a plan of action. Any thoughts or suggestions outside of what I am thinking would be greatly appreciated.
Have you considered doing a cash out refinance option with that equity you have? Then you can hold the property, lease it out while simultaneously using the equity to help with the purchase in NB area, which is more affordable than Austin. Win win have your cake and eat it too
Let me know if you have any questions
Feel free to PM me
@Lori Vines Is that basically the same as my option 2 but with a SFH instead of a multi/duplex? Wouldn't that make my cash flow disappear or become lower while saving me a bit on a new primary residence?
I am looking to focus on increasing cash flow so that I can in turn reduce my own expenses by either living mortgage free via multi units covering my mortgage while also generating cash flow which I can then use to fund future investments.
@Ryan MacDonald :
You're going to love New Braunfels! I own a rental property there. It's a good market and its growing fast. It's also well on the way to Austin and San Antonio so you have quick access to both. I would recommend looking for investment properties in the Northeast of San Antonio (Schertz, Cibolo, Selma, Universal City, Converse) its a good area once you get situated over there. :)
I've been mulling over almost the exact same situation, except all within San Antonio. Sitting on $50k in equity but wanting to move to a multi-unit to hopefully lower my monthly mortgage expense, allowing me to save me. I'll definitely look into that Lori Vines is talking about.
I like the cash-out refi + house hack a duplex idea. Very likely what I'd do in your situation. One thing to weigh is how to handle management of your old property. Maybe you don't mind the drive (its not that far away), or maybe you wouldn't. Have you considered what term and loan type you'd do on a re-fi? With rates so low I'd likely do 30yr fixed.
Since you already have a good fha loan in place I would not recommend releasing that loan, find a good property manager and rent that property, then use cash out refi or commercial refi with more flexibility to finance the duplex in NB after finding hardmoney to purchase and rehab first, your collateral should allow you to get a non recourse loan as well
Thanks for the thoughts. It looks like the house hack duplex idea is no longer on the table due to family reasons. Also, I'm not sure if a cash out refi might work. I'm currently speaking to a couple of different lenders and the direction from them is that I won't be able to do something like that because the law stipulates that the mortgage (total monthly payment including insurance, PMI, etc.) needs to be 75% or less of the total monthly rental income. I also need to have a deposit and contract in hand in order to not carry the debt with the new home.
That being said, my realtor stated that we could potentially bring in $400-$600 cash flow per month but in order to make that 75% threshold, I have to bring in at least $450 more per month than our mortgage. So I did some research to see what going rental prices are in my area and it looks to be that i will only be able to cash flow about $250 more per month which won't let me qualify since I will need to carry the full value of the existing home debt along with the debt of the new potential home. By adding on a cash out refi, I surly won't meet that 75% threshold, thus making it harder to qualify.
New potential solution:
My mother is looking to buy a SFH to rent out which means that I may help her locate a property that will rent easily, rent from her for a limited time and only pay her monthly mortgage and no cash flow (I'm still putting money towards her equity and thus my inheritance) at a lower cost then local rent prices for a bit in order to save money and put down a larger down payment. This way, I can rent my current home out and not need to worry about qualifying for a loan right away and can work through this a bit longer or find more ways to demand a higher rent price per month.