Is this my best move to start BRRRR?

Question

I've presented my scenario before but now I've got a little more knowledge under my belt.

1) The house I live in is owned free and clear. Will appraise around $100K (Paid $30K originally)

2) We want to move to a nicer place around $150K and use an FHA loan for a 3.5% down payment.

3) We want to rent out first house and hoping to get around $900-950/month.

4) We want to purchase another home to BRRRR.

Would it make sense to do a cash out refi on current home now to get around $75K for our endeavors??

1) Pays for 3.5% down payment on new home.

2) The refi loan is covered with the first house rental income netting around $250/month cash flow.

3) Cash leftover from down payment of new home gives roughly $60K+ to pay cash for BRRRR property.

Is there a better strategy to achieve what I am wanting here??

Thanks for any input/feedback!!

Nic Juncos · Answer

@Jon Kelly You make a couple of good points. Since I have lived in this property more than 2 years, selling will avoid the capital gains tax. Plus, it gives me less "pressure" to find properties really fast since the cash will be mine and not accruing interest through a loan.

I considered this option early on, but I've recalculated my options many times since then.

Thanks for bringing it back to light! I appreciate your feedback!

Jon Kelly · Answer

@Nic Juncos don't worry too much about the "best" move. Your logic is sound and would get you closer to your goals.

I would consider two additional things:

1. Selling your first property. This give you access to $100k for your endeavors. Now you can look for multi-family properties up to $400k instead of up to $300k. Does that open you to many more opportunities? If not, then stick with your plan.

2. Look for a househacking opportunity for your new home. Can you find a duplex for $200-250k and rent out the other side?

Mason Hickman · Answer

@Nic Juncos

As I’m sure you’ve ready many times on here: it all depends on your goals.... here are a few thoughts to consider:

If you’re going to want to take the money out of the first property at any point in the future, do it now while you live there so you’ll get lower interest rates.

With a cash out refinance, will you have any trouble getting another loan?

Do you need the cash from the first property to buy and renovate your second property?

Nic Juncos · Answer

@Mason Hickman My long term goal is to have $5000/month passive income from buy and holds over the next 10 years. I'm estimating around 20 doors.

Good point regarding the difficulty I may face securing an FHA loan while having a 1st lien mortgage (refi) on my first home! I'm sure they would want to see tenants in there, which I wouldn't have yet at that point.

So maybe it makes more since to get my FHA loan on new house first and then move, get tenants in first home, and then cash out refi first home even if it means a slightly higher interest rate?

Just my thoughts. Ultimately trying to get my journey started sooner rather than later but I want to make sure my decisions are sound every step of the way.

Thanks for the response!