Rental Property Investor · Atlanta, GA · Member since 2021 · 16 posts · 5 votes
Hello all,
I needed to talk this through with some seasoned individuals so I'm hoping I can get some ideas/guidance. I'm currently house hunting and in the process of lining up financing for a future house hack. I intend to keep my current residence and convert it into a rental. My dilemma is my home is need of some upgrades and repairs and I'm not sure if getting a cashout refi for the renovations is the best move. My current interest rate is 4% and I don't want to trade up to a 6+% loan. Would getting a small hard money or construction loan be more advantageous? My understanding is I would need to have a rental agreement in place for my current home before moving on to the next :/
Realtor · Atlanta, GA · Member since 2021 · 49 posts · 25 votes
3y
@Josie Kelley Also make sure not to overlook the quality of contractor that you utilize to perform your renovations. The longer they take and farther over budget they go, the longer you have to hold the more expensive note and end up paying more in interest = less in PROFIT
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
3y
Josie,
Best approach would be to do a cash out refinance while the home is still your primary so that you can get the lower 30 year fixed rate. When the renovations are completed then you can refinance it on the new ARV and convert to a rental after you get your initial capital back out. Rates are higher but a hard money loan is going to leave you with (2) things. A high rate of over 12-15% and a second lien on your property that you will more than likely consolidate down the road with a refinance.
You would be surprised if you calculate the cash out refinance new rate and payment versus the hard money loan or HELOC. You will see in many cases that the cash out refinance even at a higher rate still offers a lower payment then taking out a hard money/Heloc.
You might lose the 4% and end up with a 6.875%-7.25% but it calculates out lower than a 12-15% Hard money loan. Mortgage rates are higher right now but they will eventually go back down allowing you to take out the cash and refinance down the road for a lower rate.
Realtor · Atlanta, GA · Member since 2021 · 49 posts · 25 votes
3y
@Josie Kelley There were some really good points brought up by Jason. Hard money loans can be very costly as well as HELOCs especially in this environment. It's also important to remember that you can't borrow equity that you don't have so it's also important to factor in your home's current value vs your loan principle balance. Afterwards, I'd say the best path forward is to speak with a few lenders determine what YOUR rate would be for a HELOC as well as a refi. A good and helpful lender should be able to walk you through what payments might look like with each option so you can make your decision from there :) Good luck!
Realtor · Atlanta, GA · Member since 2021 · 49 posts · 25 votes
3y
@Josie Kelley Also make sure not to overlook the quality of contractor that you utilize to perform your renovations. The longer they take and farther over budget they go, the longer you have to hold the more expensive note and end up paying more in interest = less in PROFIT