Keep, Sell, or DSCR, not heloc eligible
I have a single family rental in west Texas that rents for $1,600. The mortgage is $850. The interest rate is .225. I hate to give up that sweet interest rate but I feel like that equity could get me a better return if I put it somewhere else. I'd likely get 110k net after tax if I sold. I can sell basically tax free due to previously living in the property. I can't get a HELOC because it's in Texas on a VA loan. I could DSCR and lose basically all of my cashflow and pull out about 50k. I sold some properties during the COVID era and I deeply regret it because everything keeps on going up due to inflation. What would you do? I really just want to get like 30k so I can fix up one property, have some reserves, and buy another.
Most Popular Reply
@Forrest Holden this is a tough one, definitely pros and cons for both selling or tapping into the equity.
If it were me, I would sell. 2 reasons...
First, the tax free gains from living there is HUGE. You only have this window when you have lived there for 2 of the past 5 years, so if you keep it you lose that benefit.
Second, since this has a VA loan, by selling you can restore your full VA entitlement, assuming this is your only VA loan (yes you can have more than 1 VA loan at a time). So this would allow you to buy another property with a VA loan with $0 down up to 4 units with no loan amount cap (you could buy a $2M 4-unit with $0 down as long as you qualified). If you refinance, you can only get a 1-time restoration of VA entitlement, but if you sell it's fully restored an unlimited amount of times.
I think those 2 benefits outweigh losing the 2.25 rate, although it does sting a little. And you should be able to do a lot more damage with $110K at your disposal than just pocketing $750/mo.
TYFYS and best of luck!