Refi/HELOC/? - Turning condo appreciation in to capital

[Bryan Clewley]

Hey BP!

Thank you for taking a look at this. Trying to work towards my first investment property and have a situation I'd love advice on. My spouse and I purchased a 2BR/1BA condo in August 2017 in a high appreciation area in Metro-Boston (North Shore). We did 5% down with closing costs rolled in for a total purchase price of $325K, the principal is roughly at $297K now, on a 30 year fixed @3.875% w/ PMI – Zillow/Redfin estimate $355-385K for a sale price.

I went through a process of looking at condo/SFH comps with a local realtor/developer and his advice was to list at $365K and expect it to sell at around $370-375K. Due to poor timing on our part getting it ready for to put on the market before school starts – we decided to hold off on selling it, also at his advice.

If the market remains as hot as it has been for the past two years – we may consider selling it next spring, as we wouldn’t be taxed on capital gains. We bought the condo without investment in mind (it would have a hard time cash flowing) and it’s hard to tell if it’s a worthwhile to hold it in hopes of long-term appreciation (seems like this is too speculative to be a good strategy).

Regardless, I'm thinking that I'd like to take advantage of the appreciation gains – by having the house reappraised via either a cash-out refi, refi, or HELOC. The market has cooled a bit in our area (properties are on the market longer, sometimes going below asking etc).

The intention for this money would be to add to our savings towards purchasing a MF to house-hack with, in the next 6-18 months. With our savings today we could put 5-10% down on our next property depending on final cost. The refi/HELOC funds could double that – which would be nice to have a pocket of cash to do any repairs, have emergency funds for the property, pad our overall emergency fund.

I’ve started to do some research on what the implications of any of these options are, but would appreciate any advice/thoughts that people have.

So far I've opened up the conversation to get quotes for cash-out-refi at a few lenders, and spoken with my original condo lender about the same or a HELOC. My lender does have an option where they'll lend 100% LTV (~$60K) on a HE loan – but I'm feeling I might be more inclined to do a HELOC @ ~6% for the potential $50K (80% LTV) we have the option to use. Idea being we wouldn't be paying interest on money unless we use it and we wouldn't be completely underwater if the market went south from a cashout-refi. Early estimates for a cashout refi would put our monthly payments (PITI+HOA+PMI) up from ~$2100, to around $2500-2600 and we could potentially lower our interest rate by 0.25% (I've been advised this % drop doesn't typically warrant a refi).

Very appreciative of any thoughts or insights folks can add to help me round out my thinking and fill in any blind spots!

Best,

Bryan