Cash Out Refi, Heloc or Sell? Denver SFR

Buying & Selling Real Estate
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Cash Out Refi, Heloc or Sell? Denver SFR

David Garcia
Member since 2021 · 5 posts · 1 vote

Hi everyone, 

Facing the same question probably alot of us are asking ourselves.... do I Sell, Cash out Refi, or Heloc. My wife and I own a 4Bd 2 Bth Bi Level SFR in Lakewood Co, Owe 300K on Mortgage (3.25% fixed, 18 years left on mortgage, $2200 Mortgage/Insurance/Taxes Payment) and property is currently estimated around $600K based on Comps in the area. After Fees/Closing, probably could net $250,000. We currently House Hack and do Short Term Rentals in the lower half of the home, which brings in ~$2700 per month in Cash.

I would like to turn the equity into even higher cash flowing assets using the BRRRR Method in Cincinnti or Cleveland based on population trends, decent rent/price ratios and lower capital requirements to BRRRR.

Selling and Taking the $250K off the table would enable us to launch our BRRRR Business, but we would of course have to rent somewhere else in CO (Not a bad thing, my wife wants to live closer to Boulder) and we would lose the $2700 monthly cash flow from short term rental income. Recognizing that home appreciation is crazy high right now, rates will likely go up in the future due to inflation, I expect the apprecation to slow down in the next year or so (just my hunch).


Cash Out Re-Fing/Heloc is also a potential option to take out ~$180K and use to BRRRR. The only thing I don't like about the Refi, is i'd probalby have to go back to a 30 Year Mortgage. The Heloc could be the best option as we can still live in the house, continue to cash flow with the Short Term Rental.

Interested to hear your thoughts! Thanks and God Bless!

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Matt M.
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
5y

Speak with a lender first and make sure you can qualify for another purchase if you take out a big HELOC.

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  • David Garcia
    OP
    Member since 2021 · 5 posts · 1 vote
    5y

    Forgot to mentioned we'd qualify for the Tax Exemption on Capital Gains since its our primary residence and meet the 2 out of last 5 rule. (Bought in May 2018, still living in property)

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  • James CarlsonBusiness Member
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    5y

    @David Garcia

    Great question. My wife, Erin, and I are asking the same question with one of our rental condos in Denver. (Sidenote, love to read about the short-term rental house hack in the basement.)

    The way I see it, there are two paths -- sell or don't sell -- and within those a few other decisions. 

    Selling will give you the most capital to play with. All of the equity will be in your hands to reinvest. The downside is of course that then you're paying $2,500-$5,000 in rent for a place (I have no idea your standards or size requirements, but Boulder ain't cheap). 

    If you want to keep the place, I'd do the HELOC. If you were only a few years into your mortgage, maybe I'd refinance, but you're halfway done, and I'd hate to go back to the beginning with a 30-year mortgage where you're paying nothing but interest for a few years.

    For me, I'd be hesitant to sell just because I don't like paying rent. But If you kind of want to move anyway, it sounds like it might be a good time to do so. Good luck!

    [email protected]720-460-1770
    James Carlson Real Estate
    WebsiteView Page
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  • David Garcia
    OP
    Member since 2021 · 5 posts · 1 vote
    5y

    Thanks for the reply @James Carlson! I really appreciate your perspective. Definitely agree with you on the downsides of going to a 30 Yr Mortgage. We've really only been in the home for 3 Years, (originally financed on a 30 Year in 2018, refi'd to a lower rate, 20 Years, no cash out in 2019) but would be a shame to go back to 30. 

    If we sell, we can consider 1) Take a portion of the equity, Downsizing and buying a smaller house outside of Denver and house hack again 2) Rent a Place somewhere outside of Denver, and get approval from the Landlord to airbnb spare bedrooms (rental Arbitrage) essentially allowing us to reduce our rental Costs.

    The Heloc seems like the cleanest way to access the equity and BRRRR some properties....only downsides I see with the Heloc is the higher interest and potential of banks not renewing if the market drops. (the latter probably being unlikely unless the FED's response to inflation is not handled correctly).

    My wife and I are pretty mobile, and have been thinking about relocating to a better neighborhood with more young families anyways. I just see the opportunity turn this equity into cashflow, and hard to imagine the market is going to get any better than it is now. Thanks for your feedback!


    1Reply
  • Matt M.
    Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    Speak with a lender first and make sure you can qualify for another purchase if you take out a big HELOC.

    1Reply
  • Justin Phillips
    Lender · Phoenix, AZ · Member since 2018 · 440 posts · 256 votes
    5y

    @David Garcia My wife and I had a very similar Sell/Keep Dilemma, and we decided that keeping the property/cashflow while retaining access to equity was the best of both worlds. We ReFi'd into a very specialized 1st position Heloc that's tied to a zero balance sweep checking account. That sweep account allows all our regular checking deposits/idle funds to sit on our balance, where they save us a ton of interest, working much harder than any "high-yield" savings account. We also retain access to equity for the 30 year term, so we're going to recycle that equity to fund multiple deals ourselves. 
    It's been a great financial tool for us, I'd definitely recommend checking it out! 

    0Reply
  • David Garcia
    OP
    Member since 2021 · 5 posts · 1 vote
    5y

    Hi @Matt M. thanks for your feedback. Ya, something definitely to research before using the Heloc to buy a house. Would be a shame not being able to refinance and pay off the heloc balance. Appreciate your comment

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  • David Garcia
    OP
    Member since 2021 · 5 posts · 1 vote
    5y

    Hi @Justin Phillips, thats an interesting method to access the capital while reducing costs and earn some interest. Whats the typical yield you see on the sweep? Thanks for your comment! Do you recommend any lenders in the Denver Market to discuss this option with? Thanks!

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  • Justin Phillips
    Lender · Phoenix, AZ · Member since 2018 · 440 posts · 256 votes
    5y

    @David Garcia With this loan, you're not earning interest, you're saving interest. That's tax advantaged, because you don't pay taxes on savings. The current rate is 3.85%, which is great for checking/idle funds. When you're paying off so much quicker, it's less about interest rate and more about interest cost over that condensed timeline. 
    I'll shoot you over with a PM with the info for the broker who originally introduced me to the loan, he's licensed up in Colorado as well. 

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