Cash out refi. Or sell?

Question

Wanting to purchase my first property (or properties) here in 2021 but wondering what other seasoned investors would suggest I do with my current home...

I’m currently in the middle of a remodel of my current home (we cash out refinanced late last year). My home appraised during the refi. Last year for $137,500, we accepted a new loan amount of $110,000 (80% LTV) and after my remodel is done I expect to be in the ballpark of an ARV of $160-$170K?

Would you, as an investor starting out, sale out and collect profit after closing or cash-out refi again and invest in other properties, rent the current home out, buy another home to live in, etc?

Remodel information:

3/1/1 brick home

Complete upstairs rehab (insulation, drywall, new heating/cooling system)

Full bathroom remodel (toilet, flooring, shower, vanity, etc.)

New kitchen appliances

Front and back decks installed

Jacob Thompson · Answer

@Lee Judd

Lee I requested to connect with you my friend. I appreciate the support and kind words. I hope you and your family had a Merry Christmas and a Happy New Year.

Lee Judd · Answer

@Jacob Thompson Glad to hear that. It helps if you are a team and in it together.

Jon K. · Answer

Don't forget closing costs on the sale. You won't get the full 20, more like 11 to 13%.

Jacob Thompson · Answer

@Lee Judd

Valid point. She supports me. She knows my long term goals and where I stand. She went through my time in the military and survived.

Idk what my plans are yet as far as the house goes. I’m thinking I’ll probably just hold & rent the house and let them pay down my current mortgage. If I need funds for our next home, I may refinance that amount then if needed.

Lee Judd · Answer

@Jacob Thompson you better be asking what does your wife want? If she doesn't want to sell than there is your answer. Is she willing to invest along side of you? Is she willing to go through the ups and downs with you. My wife is fine with me investing but it doesn't excite her. I had to have her a house before I took any money and put into real estate investments.

Tanner Sherman · Answer

Very good point, you're absolutely right that should be factored in too.

Jon K. · Answer

Let me start by saying it doesn't matter what I or any other investors would do. It is critical to define your own goal and make a reasonable plan to achieve that goal based on your own skills, knowledge, resources and risk tolerance.Do you need any of the equity in order to purchase a new property or properties? How well will your current property cash flow if you were to rent it out with your existing mortgage? With a new mortgage at 80% leverage based on the new ARV? If you were to sell it vs renting it out, how many properties would you be able to buy and how would they cash flow?

In terms of using your resources, you have a primary residence that you believe will have 50k to 60k of equity in it when your current remodel is done. A second cash out refinance at 80% LTV will net you an additional 16 to 22k before closing costs. Alternatively you could explore establishing a home equity line of credit (HELOC) instead. Some lenders will let you go anywhere from 90 up to 100% on a HELOC on a primary residence which can potentially allow you to tap the full 60k as needed at a relatively low interest rate.

What I would do in your shoes is start by figuring out my goal and the realistic timeline in which I would want to accomplish that goal. Then make a plan to do so. Figure out how I'm going to make that plan work. Look at all my resources and then let that help guide your decision.

I put a lot of time and energy into this sort of introspection and often encourage others to do the same as it will help guide you. Please feel free to message me to discuss further if you think it would help.

Tanner Sherman · Answer

I would always look to BRRRR the property first. If you can charge high enough rent to still cashflow after refinancing then you can't go wrong with that. Now if you need the remaining 20% of the equity to use towards your new house then it might be a good idea to sell.

Cash out refi. Or sell?

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