Refinance or Sell to put cash to work harder?

Buying & Selling Real Estate
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Refinance or Sell to put cash to work harder?

David C.
Chicago, IL · Member since 2019 · 39 posts · 9 votes

Hi BP brains,

I'm 99% sure I want to release the equity in my condo i rent out to free-up cash to buy some turnkey SFHs or a MF. It used to be our home so fell into landlording. 

It's close by, we manage ourselves and tenants are great. Very hip neighborhood. But I realize its not the best i can can do with cashflow, Cap rate and COC return though, I just don't know how far off it is - need help running numbers on it after refinance.

3 bed/2 bath /1 car condo in 8-unit building in Wicker Park, Chicago (60622). 

Purchased in 2014 - 495k

Potential appraised value (looking at comps) - 540k 

Loan - 285k balance - Conventional fixed 15yr @2.75% - 9/28/2016 (refinanced) - 11/12/2031

Rental income: $3600/month (Leased from Aug 1 2018, ends July 31 2020)

Monthly payments:

P&I: 2361

Escrow (tax and insurance): 711

HOA: 300

Total: $3372/month

Occupancy - 6%

No property management (self-manage)

Appreciation - conservatively 1% (because it's Chicago and neighborhood has gentrified already)

Rental appreciation - conservatively 1.5%

Maintenance and cap ex reserve - 5% (its in good condition - new appliances, furnace/HVAC, well maintained building)

(spent 15k on upgrades over last 2 years)

Key questions:

what will be be my cashflow after refinancing?

what's that cap rate and coc return after refinance?

refinance to pull 75% of equity or just cut loose and sell to get it all working harder?


Anyone got a tool for doing post-refi calculations? I'm a little unconfident with building/adapting spreadsheets to be honest.

thanks BP community!

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Clint ShelleyPro Member
Surveyor · Dothan, AL · Member since 2014 · 425 posts · 391 votes
6y

David,

Why don't you just get a HELOC? You could pull and replenish the equity but keep that original mortgage intact. You have a sweet rate, and you don't have to go through the hassle of selling.

Clint

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    6y

    @David C. I can put you in touch with a great lender so you can get the PITI figured out post cash out refinance. That is the main thing you would need in order to make sense of whether or not you should pull the trigger on the cash out refinance.

    One other thing to have on your radar though, is the ability to sell the place tax free if it was your primary residence for 2 of the last 5 years. Doing the simple math, it appears that this may have been the case. If this is true, I would personally liquidate the condo and put the cash to work elsewhere. Although Wicker Park is a great neighborhood, I doubt it appreciates enough to make it worth your time to hold onto this place long term. If you hold it for 7-10 years you will need to invest real money to make it "trendy" again as the kitchens and baths would be dated at that point for an A class neighborhood. 

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  • David C.
    OP
    Chicago, IL · Member since 2019 · 39 posts · 9 votes
    6y
    Originally posted by @John Warren:

    @David C. I can put you in touch with a great lender so you can get the PITI figured out post cash out refinance. That is the main thing you would need in order to make sense of whether or not you should pull the trigger on the cash out refinance.

    One other thing to have on your radar though, is the ability to sell the place tax free if it was your primary residence for 2 of the last 5 years. Doing the simple math, it appears that this may have been the case. If this is true, I would personally liquidate the condo and put the cash to work elsewhere. Although Wicker Park is a great neighborhood, I doubt it appreciates enough to make it worth your time to hold onto this place long term. If you hold it for 7-10 years you will need to invest real money to make it "trendy" again as the kitchens and baths would be dated at that point for an A class neighborhood. 

    Good points to consider there, John. Thank you! Wasn't thinking about the tax. Agree - long term i'll probably need to upgrade that kitchen to keep it renting well. My wife is emotionally attached to it - doesn't want to sell (didn't really want to move) - so I'm building a case to open her mind to the opportunity cost of holding it - e.g. what the cash could be doing for us in say 4-5 turnkey SFRs out of state over 5-10 years. It's hard as she hasn't been on the journey with me yet - still thinks rent covering PITI is good enough, doesn't get cashflow and equity appreciation. Got to show her the numbers. :(

    0Reply
  • Michael Facchini
    Lender · Chicago, IL · Member since 2017 · 438 posts · 193 votes
    6y

    @David C., I'd be happy to dive deeper on this one with you. Warrants a live chat to really get into the nitty gritty. But based on some VERY ballpark calculations, using this general scenario as an example, a 70LTV could pull $90k in cash-out. If looking at a 30Yr Fixed, it's fair to say that the payment could be kept around $3,075 with taxes/insurance/HOA included. Or at a 75LTV, that would be closer to $120k cash-out and the payment could possibly fall around $3,225.

    Again, this is very general and doesn't take into account any file specifics, credit scores, etc., etc.  Just some ballparks to chew on, and you'd of course need to whittle down on rates and payments once the exact details for your scenario are plugged in.  That said, in my opinion, if you're able to bring in $3,600 in rent and can cash-flow a few hundred dollars, on top of $450-$500/mo in principal pay-down, while pulling out $90k-$120k for the next investment, that's not a bad situation.  Hopefully that gives you a little something to kick around for now, but any questions never hesitate to reach out! 

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  • David C.
    OP
    Chicago, IL · Member since 2019 · 39 posts · 9 votes
    6y

    Thank you @John Warren and @Michael Facchini - appreciate those responses.  I'm going digest that info. Might be in touch to take you up on your offers. thanks.

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    6y

    @David C. any time. 

    0Reply
  • David C.
    OP
    Chicago, IL · Member since 2019 · 39 posts · 9 votes
    6y

    I finally decided to go with the refi even though tough to give up 2.75% on a 15yr. Concluded that I should improve cashflow anyway as not breaking even after all numbers factored in, and that 100k+ equity could be working much harder over nxt 5 years than just supporting further equity build. Tnk you again all!

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    6y

    @David C. I agree that the cash out makes sense. Best of luck! Now go redeploy that capital. 

    0Reply
  • Clint ShelleyPro Member
    Surveyor · Dothan, AL · Member since 2014 · 425 posts · 391 votes
    6y

    David,

    Why don't you just get a HELOC? You could pull and replenish the equity but keep that original mortgage intact. You have a sweet rate, and you don't have to go through the hassle of selling.

    Clint

    1Reply
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