Hello all, new investor here looking to get in the game. I bought a house in Arvada three years ago which I now rent. I cash flow $650 on it with my current loan. I just had the house appraised for $495K and I owe $339K. Is it advisable to refi with cash out or line if credit to buy another house? The Denver market seems competitive but I like the BRRR method of investing. In Denver, it seems like the $100K-$150K single family homes are a thing of the past so it seems I'll need more money to start than the $30K-$35K everyone talks about. Am I late in the game or are there still pockets to invest in?
The best properties to look for now in the Denver market is duplex triplex or four Plex they,Will bring you a cash flow if the numbers work!
You said, "which I now rent." - Did you use to live there as your primary residence? if so, was it longer than the 2 year rule to exclude capital gains?
It's hard to give you a detailed answer without knowing a lot more about your situation.
Is it advisable? Depends!! If you're able too, sit down with a loan officer and agent to run through different scenarios. If you're able to exclude capital gains, one can make a strong argument to sell that property and redeploy the capital for better investments.
What type of rates are you looking for a refi?
What type of cashflow are you looking for on your rentals?
The Denver market is tight, it's difficult to find properties where you can do the textbook BRRRR of where you pull out all of your original capital.
@Chris Lopez Hey Chris, yes I lived there 3 years and just moved out a few months ago. I do love the house but it was far from downtown. I haven't spoken to a loan officer yet or looked at rates on refi...I'll be doing that this next week after the holiday. I'd like as much cash flow as possible of course but $300-$400 a month would be nice.
I found this website last week and figured me pulling money out of my current rental to buy another makes sense. Why do you feel selling the house would be better than refi with cash out? My house is in the Candelas Arvada which is a booming area.
@John Quintana Thanks John I'll add that to my list to look at.
@Eric Dupuis - Where are you living now? Are you renting somewhere?
If you are, you could always do a "house hack." If you're unfamiliar with what that is, it is when you purchase a 2-4 unit property with low percentage down, owner-occupied loan. Live in one unit while renting out the rest.
The SFR version of this is renting by the bedroom. You purchase a SFR, live in one bedroom and rent out the others by the room. Fair warning here - typically, you will get young professionals as roommates in this situation, but the numbers typically do work better than the multifamily properties.
Having $30-$35k is enough. I closed on a duplex for $385k and was all in for under $20k. I did the 3.5% down FHA loan.
Hope this helps!
@Eric Dupuis Just to very clear, I'm not saying selling the house is the best option (or even recommending it.) It's a worthwhile exercise to explore the different scenarios. I'm a big fan of just buying and holding forever since RE transactions costs take out a good chunk.
What are you renting the place for? $2500/mo?
The argument to sell (just playing devil's advocate) is that $2,500/mo in rent on a property worth 495k is the not the best use of equity when you can buy a place for 230 and rent it for 1850/mo. If you sell, you'll walk with without paying capital gains.That's the argument on paper.
I would talk to a loan officer ASAP about refinancing. I believe for investment property they'll do 75% loan to value.
@Craig Curelop 's advice about house hacking is right on. The numbers are amazing for house hacking!
@Eric Dupuis I think you'll find a divide on Bigger Pockets on whether or not Denver is a wise investment right now. That divide seems to be driven by the mindset of each individual and what they are trying to accomplish. If you're house hacking, it's absolutely possible to find a good investment with $30k. It just depends on how much work you're willing to put into it.
If you're going to look at a Conventional cash-out refi, you will be able to pull out up to 75% LTV. A HELOC is more dependent on the individual lender as they each set their own terms for their HELOC product. In general, I recommend the HELOC when there is going to be a recycling of money such as somebody looking to draw equity for flips. If you're looking to access the equity for a long-term investment, it usually makes more sense to go the Conventional refi route to get the better rate & terms locked in.
@Craig Curelop Yes I rent downtown. That's an idea for sure. I'll look into some multi-family around the area. Is your duplex in denver?
@Chris Lopez My rent is around $2500 downtown. I work in Boulder so I wanted to see how to drive was before buying in Denver. The multi-family is an option for sure. I'll talk to a loan officer this week and give you a call Chris
Thanks for your help!
@Jared Bouzek Thanks for you advice Jared. I agree that a cash out refi might be my best option or a house hack. If I get a FHA loan and house hack it, how long do I need to stay in the place?
@Eric Dupuis - Yes, it's in North City Park.
Hi Eric, welcome to BP. Do you have money for a down payment? If not, a cash out refi or even a heloc on the first property to get the sown to peuchase the second is a good way to go. I would be on the lookout for a duplex or triplex that you could live in one and rent the other parts. This would give you more purchasing power and also more ROI on your purchase. Depending on your interest rate your refi might actually help reduce your mortgage payment and increase cash flow.
If you sell it outright, I would absolutely get a duplex or triplex so I can at least have one rent comming along with my own residence.
@Eric Dupuis Virtually all of your owner-occupied mortgages (Conventional, FHA, VA, etc) have a 12-month requirement for you to live in the property. This is aside from extenuating circumstances.
@Kevin Grinstead I don't have 20% plus closing at this time so I think you are right in a cash out or HELOC. I've been on the lookout for muli-family. Thank you for the welcome and your comment. I've been shopping refi rates this week
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