Cash refi to buy income properties

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Cash refi to buy income properties

Ivy Liu
Member since 2021 · 3 posts · 1 vote

I'm a part-time investor and looking for advice on how to have my real estate investments cover their own mortgage/expenses.  I'm working with two investment properties.  

Property #1: has had significant equity, and can do a cash out refi and take out $200K.  I'm having a relative living in this property.  So, it cannot be sold.  However, since my relative lives there and I pay for everything, it can be re-financed with a primary resident loan.  The monthly expenses (mortgage/taxes/insurance) is $5,000/month currently.  A regular refi with the current low rate can lower the mortgage by $900/month. 

Property #2: The second one can be sold and in a 1031 exchange can realize $400K profit.  Currently, it is being rented.  It is cash positive and brings in net $1,300/month. 

The problem: since my relative lives in Property #1 and I'm not charging rent, I'm paying the expenses out-of-pocket, which is too much for me.  I'm looking for ways to reinvest the equity in Property #1 and Property #2 to cover the mortgage/expenses of $5,000/month for Property #1.  Property #2's rent currently offset $1,300 of the expenses for Property #1. 

Potential Solution #1: do a regular re-fi of Property #1 and lower the monthly mortgage by $900.  Sell Property #2 in a 1031 exchange, and identify investment opportunities that can generate $4,1000/month with $400K investment.  

Potential Solution #2: do a cash out refi on Property #1 and bring out $200K.  Given the low interest rate, the monthly expense would be the same: $5,000/month.  Sell Property #2 in a 1031 exchange.  Look for investment properties that generate $5000/month cash with $600k of investment. 

Potential Solution #3: Keep both properties.  Do a cash out refi of Property #1 and use the $200K to look for investment opportunities that generate $2,800/month.  

How possible/where can I find investment opportunities that work with each solution?  I'm located in Nor. Cal and I cannot find cash positive properties here to fit any of these potential solutions.  Looking for other suggestions.  Thank you!

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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
5y

Read the book Boundaries by Dr Henry Cloud.  

I can't imagine being ok with completely relying on a relative to provide me a nice home and utilities and everything. 

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  • Brendan Miller
    Rental Property Investor · Gilbert, AZ · Member since 2020 · 210 posts · 163 votes
    5y

    @Ivy Liu I would probably do the cash out refi on property #1 for $200k and the property #2 for $400k and then you can use that as a down payment on a cash flowing property (or multiple) in the Midwest at a 10% CoC return to net you the income you're looking for. You need to focus on cashflow markets which is why the Midwest would be good.

    0Reply
  • Ivy Liu
    OP
    Member since 2021 · 3 posts · 1 vote
    5y

    @Brendan Miller. Thank you for the tip. I don't know anything about the midwest. What are the markets in the midwest that can generate 10% CoC?

    0Reply
  • Brendan Miller
    Rental Property Investor · Gilbert, AZ · Member since 2020 · 210 posts · 163 votes
    5y

    @Ivy Liu you should be able to find those types of deals in any big Midwestern city (Kansas City, Indianapolis, Columbus, Cincinnati, etc). You could also look at Turnkey rental providers in the Midwest, but you’ll likely pay a slight premium in purchase price 

    1Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    5y
    Originally posted by @Ivy Liu:

    I'm a part-time investor and looking for advice on how to have my real estate investments cover their own mortgage/expenses.  I'm working with two investment properties.  

    Property #1: has had significant equity, and can do a cash out refi and take out $200K.  I'm having a relative living in this property.  So, it cannot be sold.  However, since my relative lives there and I pay for everything, it can be re-financed with a primary resident loan.  The monthly expenses (mortgage/taxes/insurance) is $5,000/month currently.  A regular refi with the current low rate can lower the mortgage by $900/month. 

    Property #2: The second one can be sold and in a 1031 exchange can realize $400K profit.  Currently, it is being rented.  It is cash positive and brings in net $1,300/month. 

    The problem: since my relative lives in Property #1 and I'm not charging rent, I'm paying the expenses out-of-pocket, which is too much for me.  I'm looking for ways to reinvest the equity in Property #1 and Property #2 to cover the mortgage/expenses of $5,000/month for Property #1.  Property #2's rent currently offset $1,300 of the expenses for Property #1. 

    Potential Solution #1: do a regular re-fi of Property #1 and lower the monthly mortgage by $900.  Sell Property #2 in a 1031 exchange, and identify investment opportunities that can generate $4,1000/month with $400K investment.  

    Potential Solution #2: do a cash out refi on Property #1 and bring out $200K.  Given the low interest rate, the monthly expense would be the same: $5,000/month.  Sell Property #2 in a 1031 exchange.  Look for investment properties that generate $5000/month cash with $600k of investment. 

    Potential Solution #3: Keep both properties.  Do a cash out refi of Property #1 and use the $200K to look for investment opportunities that generate $2,800/month.  

    How possible/where can I find investment opportunities that work with each solution?  I'm located in Nor. Cal and I cannot find cash positive properties here to fit any of these potential solutions.  Looking for other suggestions.  Thank you!

    I think you can find these returns in Columbus, Ohio.

    I recommend you read this article on OOS investing. It explains the importance of creating your core four. You will need to get a local, rockstar Realtor, contractor, lender, and property manager.

    https://www.biggerpockets.com/blog/core-four-real-estate-team

    I invest locally in Columbus, Ohio

    [email protected]614-541-8475Podcast Guest on Show My Job Laid Me Off, So I Replaced My Salary with Rentals
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    1Reply
  • Jacob Trogan
    Lender · Kansas City, MO · Member since 2016 · 141 posts · 71 votes
    5y

    @Ivy Liu I would recommend looking in a state that has high cash flow for low cost properties so here in the Midwest would be great, reach out to me if you want some help on how numbers look in Kansas City

    1Reply
  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    5y

    Kansas City COC ranges from 6-12% on the average

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    Read the book Boundaries by Dr Henry Cloud.  

    I can't imagine being ok with completely relying on a relative to provide me a nice home and utilities and everything. 

    2Reply
  • Gabriela Laguna Leon
    Real Estate Agent · Cincinnati, OH · Member since 2021 · 13 posts · 13 votes
    5y

    @Ivy Liu I would agree with @Brendan Miller in Ohio. Right now the areas of Cincinnati, Columbus, Cleveland/Akron area great for out of state investors. Depending on the area you may find cashflow properties and others appreciation. 

    1Reply
  • Jonathan PavkovBusiness Member
    Columbus, OH · Member since 2021 · 201 posts · 166 votes
    5y
    Originally posted by @Brendan Miller:

    @Ivy Liu you should be able to find those types of deals in any big Midwestern city (Kansas City, Indianapolis, Columbus, Cincinnati, etc). You could also look at Turnkey rental providers in the Midwest, but you’ll likely pay a slight premium in purchase price 

     +1 for Columbus. Solid returns, cash flow + appreciation in multiple pockets.

    [email protected]614-802-5721
    1Reply
  • Jonathan PavkovBusiness Member
    Columbus, OH · Member since 2021 · 201 posts · 166 votes
    5y
    Originally posted by @Steve Vaughan:

    Read the book Boundaries by Dr Henry Cloud.  

    I can't imagine being ok with completely relying on a relative to provide me a nice home and utilities and everything. 

     Haha - great book. Yep - try to separate personal assistance (which might be necessary) with business decisions (which has a cold, calculated bottom line).

    [email protected]614-802-5721
    1Reply
  • Ivy Liu
    OP
    Member since 2021 · 3 posts · 1 vote
    5y

    @Steve Vaughan haha.  I'll look into.  Thanks.  

    0Reply
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