How can I get my equity to work for me.

Question

My wife and I are about to buy our first house in Hendersonville Tn. It is a growing market right outside of Nashville. We have been renting the house for about a year now with the intention of buying in 2021. The owner is a family friend and is giving us a pretty killer deal. 180k is the selling price and it appraised just north of 245k. The goal is to move out of the house as soon as possible and turn it into a rental. We are planning on an fha loan taking advantage of the 3.5% down payment but are curious if there any other finance options that may better suit our goals. Is there any way to get that equity to work for us?

I am a complete newbie to this whole process. I stumbled upon bigger pockets podcast about 2 months ago and have learned so much. We are so stoked to get started. I just bought David Greens book on BRRRR and can't wait to dive in. Thanks for all the input to help a rookie out!

Nate Bell · Answer

@Marshall Sanders

Either do a cash out refinance in a year as Sarah says or get a HELOC. There are advantages to each, but I think HELOC would suit your situation better. Someone can correct me, but I think if you went to cash out refi in a year, it wouldn’t be owner occupied and you wouldn’t get that 3.5% down, so you’d have to have more equity in the deal upon refinancing. HELOCs are helpful for flipping/BRRRs but aren’t great if you can’t relatively quickly recover what you withdrew.

Sarah Brown · Answer

Hi Marshall,

Congrats on the new deal! That sounds amazing.  Are you guys planning to move out and into another rental?  When you get a loan like the one described, you can't get another one for a year.  That is an "owner occupied" loan, and they assume you will be there for a year.  You may get tagged for potential mortgage fraud if you pull too many at once.  Another good option would be to do a cash out and use the cash as a DP on a second house with a conventional loan.

Pranav G. · Answer

Marshall Sanders: Congratulations on your decision to dive in to BRRRR. There are many ways to equity to work for you. It depends on what exactly you love to do. Private money lending, using that equity to buy another property, syndication, etc.

Looks like you are interested in a Single-family home at this point. I would go ahead and use equity to purchase another rental property. Feel Free to PM me if you need any help. Good Luck

Ken Nyczaj · Answer

@Marshall Sanders some conventional loans I’ve seen as low as 5% which may allow you to cash out refinance faster than FHA. Plus, if you do plan on moving you may not have to stay in the property for a year like with FHA.

Caleb Brown · Answer

HELOC's are beautiful to use on these scenarios :)

Marshall Sanders · Answer

@Jack Montague

Thank everyone for reaching out. This is why I hear on the podcast that this app is so awesome.

Jack thanks so much for your deal deep dive. Sounds like we could really turn this first buy into a pretty good asset.

To answer Sarah's question about if we are wanting to move out and into the next rental, yes that is the plan currently. Our current short term goal is obtaining 5 doors over the next 3 years. I know we can do it we just have a lot of learning to do. Sounds like I need to do my homework on ELOC and how it works.

I just want to thank everyone again for reaching out to help my wife and I learn about investing. We are so greatful to be a part of a community that is so willing to educate the newbies.

Jack Montague · Answer

@Marshall Sanders First off, congrats on getting into real estate, lucky for you the first deal is one where you can have immediate equity. Hendersonville is also a fantastic area to buy right now. I'm familiar with the outskirts of Nashville, and Hendersonville is a great spot for appreciation in the near future.

I just did a deal where I paid cash and got a HELOC for 75% LTV. Much like people have mentioned above about a line of credit. 75% of the appraised value comes right above the purchase price of $180k at $183,750. Therefore, if you wanted to go with a HELOC secured by the home you would only have to leave $3,750 into the property, without considering closing costs. My rate was 4.5%, so if you decided to use a HELOC your monthly payment would be somewhere around $690. However, that is all interest, so you aren't paying down a mortgage.

An FHA loan is also not bad with little cash down. Over time you could refinance and pull cash out. It all just depends on what you would like to do personally, and in an appreciating area like Hendersonville, this is a safe play as well.

If you have any questions or would just like to expand your network in the Nashville area, please feel free to reach out at anytime!

How can I get my equity to work for me.

Most Popular Reply