REFI, HELOC, or new owner-occupied or combination?

3 Replies

Hey all, 

Just signed up here, but have been reading and lurking for awhile. Such a pleasant, helpful community here.   I am poised to make my next investment(s), and would love advice on how to move forward as efficiently as possible. Would love to buy several units in the next year. 

The deets:

My partner and I have a home in Portland that we bought for $325k in 2015, and built a detached ADU (1bd/bath apartment) that was finished last summer. We have rented the house since shortly after purchase for $2050/month, and the ADU is rented under market value at $1k/month. So the whole thing flows a bit over $3k/month, and hard costs including mortgage and PM is $1700/month. We owe $250k on it, and it's recently appraised at $500k with the new ADU and the increase in value over the last two years (its inner SE, if you're familiar with Portland).

We are currently living out of the country for nearly a year (academic reasons), and so have the opportunity in returning of buying an owner occupied home with the mortgage incentives that come with that.  We also have the $200k+ equity sitting in the Portland house.  What we don't have at the moment is a lot of liquid cash, but we have excellent credit and consistent employment.  We are self-employed through our own type S corporation. 

How do we best leverage the equity in house? How do we best leverage the fact that we're eligible for an owner occupied mortgage?  Interested only in investing in Oregon/Washington at this point. I have construction skills and would prefer to do my own major rehabs and repairs, even if we do use a PM for the day to day stuff.   

Any creative ideas for us? I want to be really aggressive over the next 5 years of buying and holding as many rental investments as possible.

Thanks in advance. 

Hey Tyler, 

Where overseas are you? I hope you're enjoying the experience! 

First things, first, I'd raise the rent to market on the ADU. Unless there is a friend or family member who you are helping out with lower rent, you're not doing yourself any favors. Depending on where in inner SE you could certainly get more out of it. Potentially the house too, depending on how big/amenities.

A HELOC seems like a decent option, if you can find a bank who will help you out since the property is rented. It's possible a local bank (I can check with mine for you) will understand you're out of the country and that is why the property is rented. But, I could also see other banks treating it like the rental it is and not wanting to HELOC it for you. Do you know what an extra 100,000 would do to your cash flow? Are you still able to put away cash as a reserve with that?

I'd save, save, save while you're overseas. You're right, there are incentives for home ownership (even under the new tax plan) but to buy a fixer upper, you're going to want more options than just an FHA 3.5% down loan which will limit how much of a fixer you can get. You could always sell the property and 1031 it into a larger income property, but I'd rather continue buying more. Is there room/zoning to subdivide the house/add on to create more equity or cash-flow that way?

In the meantime, I recommend continuing to educate yourself, hone in on a few neighborhoods, and start working with a lender now. Even if you don't plan on buying for another year, you'll know what you need to show as a self-employed couple to qualify and how to start that process sooner. 

Best of luck!

Mathew

Thanks for the thoughts guys! @Mathew Wray , good point about a HELOC against a rental (and about always saving!). The plot does thicken a little - the ADU was/is our primary residence/address (for both ourselves and our business) before moving to Costa Rica, and is rented below market is because it's rented month to month to a family friend. They continue to collect our mail there for us, and it wouldn't be inaccurate to call their stay there a kind of glorified house sitting (though of course they did sign a basic month to month lease).  We don't use a PM with them, and they Square us the rent every month. So perhaps it would be best to claim the ADU as our primary residence when we move back and get the HELOC that way.  The house alone has decent cashflow over the mortgage, so I don't think that should count against our debt/income too much. Hmm... thanks guys, you have me thinking!  Any other ideas?

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