Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
Here is the scenario. I have a home that I’ve owned for 6 years. It’s worth about $380k and I owe about $240k. I want to strip out as much equity as possible. Today a wild idea occurred to me and I want to consult the community. But first the traditional options and why I don’t like them.
1. Refinance - This would require 80% LTV and only allow me to strip about $64,000. Also requires closing costs.
2. HELOC - same as above with a higher interest rate and an additional monthly payment on the borrow. Also requires closing costs.
Now for my wild idea...
3. Sell to myself - If I buy the house from myself using an FHA loan @3.5% down I'll pay about $13k plus closing costs. I'll get the tax exemption having lived in it for 2 of the past 5 years along with a new basis of $380k. Most importantly, I'll clear about $140k on the sell side with $13k plus closing going back in for a net of $127k. I realize I'll pay PMI and my monthly cost will go up..but putting an extra $63k in my pocket in the middle of a pandemic seems like the move.
Assuming that you have the property titled in an LLC currently, I don't think this will work since you are the Member of the selling entity. If its titled in your personal name, it would just be a refinance.
I would try to find a friend or family member who has an under performing IRA or has money in a bank CD. Give them a 2nd mortgage in exchange for your equity. You get the cash, they get a safe stable investment, and it never appears on your credit.
Yeah, but did you read what Mr. hammond said? Even he claims that you'd lose in an audit. Furthermore, you would have to pay for two closings and the Title is still held by a LLC. Its lot like people haven't for, well forever, being trying to get out of paying taxes.
@Justin Hammond have to considered selling to a family member and holding the title and loan 51/49 in favor of the family member?? The idea just occurred to me. I’ll have to run it by my CPA.
@Account Closed At this point, your time would be better spent finding and buying another deal or going and selling some real estate with your license. The phrase "stepping over dollars to pick up pennies" comes to mind.
@Preston Porter in my opinion securing cash reserves as an investor is leaps and bounds more critical than just buying the next property. I consider the next house to be the pennies 🤷🏼♂️ They are, after all, in unlimited supply.
@Account Closed, "securing cash reserves as an investor" sounds well and good, but, once you maximize your borrowings in order to achieve that (as opposed to saving up), you will be up for Interest immediately (something you earlier wrote you were trying to avoid). And yet, you do see the dilemma of not fully cashing out a HELOC in case prices drop, and any unused line of Credit possibly being withdrawn.
So, do you trust your instincts about its Value being about to increase rather than drop, or not?
We here at BP cannot answer that question for you. Good luck...
@Brent Coombs as I mentioned before....We are talking about stripping the equity off ONE home that I own...not my entire portfolio...or my savings. I’m looking for unconventional answers which appears to have upset quite a few people....
I’m fairly confident in my own instincts, they’ve served me well to date. That said, one can never have too much cash set aside. Thus the entire reason for the discussion.