What would you do? Sell, Cashout, HELOC, or something else?

Question

I'm looking to acquire another rental and am unsure if I should use the equity from my first rental.

The investment property details:

Investment

SFR

315k Value

198k Owed (62% LTV)

Currently on a VA loan at 2.875%.

Would you sell it? Invest the money into other projects? Would you do a Cashout refi, even though the rate will increase dramatically? Or do a HELOC? (I haven't found lenders doing these)

Jaron Walling · Answer

I'll assume this property is cash-flowing otherwise we wouldn't be having this conversation. That rate is like free money. Bummer your VA purchase power is trapped with it. I'd leave it alone and find another way to fund deals if the ROI is good. I'd focus on the numbers and strategy before going the HELOC route. Won't be as useful if property #2 doesn't produce a return. Hard to say with raising interest rates.

Rant: In the last few years a lot of investors were doing "BRRRR" deals but it wasn't the real BRRRR strategy. They weren't buying properties with cash. It was low DP, throw some money at it, ReFi it, and pay closing costs. Repeat. It was only possible with low interest rates going lower, and high appraisals. No lie I was one them because we house/hacked, renovated, and cashed out after 12 months. It was really BRRRR-ish, and we still left $7K in the property.

This year the strategy appears to be in turbulence.

Scott E. · Answer

How much is that SFR renting for right now, what are your expenses, and what is the cash flow?

Zachary J Strang · Answer

@Scott E. the cash flow isn't great.

Rent Amount $1650. The rent needs to be raised to realign with the market. They originally signed a two-year lease, this will end in August.

MTG $1225.19, including escrows

10% PM fee- $165

$259.81 before Repairs and Vacancy, Capex.

Zachary J Strang · Answer

@Kerry Baird, that's the route I keep leaning. I think I need to find the right lender.

Zachary J Strang · Answer

@Jason Wray You don't actually have to refinance out of a VA loan to use it again. I actually have 2 VA loans currently. I think doing the cashout before I left the first property would have been a great idea.

Jason Wray · Answer

Zach,

First if you own a rental that is currently under a VA loan you should really have refinanced it to free up your VA entitlement to buy VA again.  If you would have refinanced before you moved out you could of taken out up to 100% cash out.  Now that it is a rental you can only take out 75% LTV which is still around $37K minus $6-7K in closing costs.  You should be able to clear $30K tax free through the refinance so you avoid having to pay a agent/realtor fee of 3-6% and no taxes.

A HELOC is a burden on a rental especially on a VA loan.  Refinance into a conventioanl loan free up the VA entitlement and buy more REO.

Kerry Baird · Answer

I would keep that mortgage in place and keep looking for a HELOC.  Call small local to the property community banks and credit unions.

What would you do? Sell, Cashout, HELOC, or something else?

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