How can I best use my $300k in equity for down payment

Question

Hello everyone!

I currently own two multi family properties. I have a four unit, and a duplex. I just bought the duplex two months ago with an FHA loan, so I will be living there until the end of January, and then moving back to the four unit building.

I bought the four unit in 2013 and rehabbed it for a total loan amount of $459,000 and I have refinanced it to a conventional loan, and the remaining balance is around $445,000. The property is  worth somewhere around $750,000 and perhaps a bit more. This leaves me with approximately $300,000 in equity.

I am wondering how best to take advantage of my equity. Should I wait until next February when I move back to the four unit and it is my primary residence again and then do a HELOC? Would a cash out refi be better? My current interest rate is 3.75% on a 15 year loan, so I feel like this option might not be great because my interest rate on the new mortgage would be higher, and I only have 14 years to go now on this mortgage (but then again I'm new so if you think this is a good option please tell me why)!

Most people in my neighborhood have seen an average of $100,000 in equity per year if they've bought in the past five years or so. But prices are high so if I want to buy here, most of the equity will be used towards the down payment (am I allowed to do that?) Or would I be better off going to another market where I could purchase several multi unit properties with the equity that I have (they will be cash flowing properties, but not have the same potential for equity growth as my current neighborhood).

Hope that I've explained everything clearly enough! I look forward to any advice or recommendations that you all have.

Cheers,

Jen

Upen Patel · Answer

@Russell Brazil Thanks for the mention.

@Jennifer Drew Your best option to pull out the max cash would be as owner occupy. So you have to wait until you move back and then wait for a few months before you do it. For a HELOC the issue you are going to run into is that the property is a fourplex. So while you are owner occupying it, most HELOC lenders will not offer you a loan because it still has an investment component. And they remember the nightmare for a few years back when their loans were wiped out. Not saying there might not be a lender out there willing to take the risk, just that I have not come across them.

You might be able to get some cash out with a cash-out refi.

Russell Brazil · Answer

The appraisal on a refinance will typically be more conservative than on a sale.  So let's say the appriaser appraises it at $700,000..which it may not even get that high based on the comps I know in the area...then you are really looking at only being to do a cash out refinance of a little more than $100k. A good sum of money, but also not anywhere near the $300k it sounds like you would like to have available. I would talk to @Upen Patel about how much you could realistically take out of the property.

Jennifer Drew · Answer

@Curt Davis I've heard that some banks will loan 90% LTV. Is this your experience? Also, yes, I do need to live in the duplex for one year, which is why I said I wouldn't do the HELOC until next February once I move back to the four unit. Also, I see you're in Memphis. The other market I'm considering is actually Knoxville, since I went to UT and I'm familiar with the area. Thanks for your feedback!

Todd Whitt · Answer

I am not sure of the HELOC programs in the DC area, but I currently have a HELOC on a rental property that is 90% LTV and believe that to be pretty common in my area.

Derrick Craig · Answer

@Jennifer Drew

I love the idea of pulling the equity from the four plex to use to invest in Real Estate. You are on the right track to get the absolute best rates and terms on the Equity line it is best for you to move back into the four plex in February. It is going to be hard to beat the 3.75% that you currently already have on the 15 year loan but it well worth looking at the rates for a 2nd on the home with the Equity Line.

Daniel Foster · Answer

@Jennifer Drew

There are still some banks that will do a high ltv HELOC on a primary residence.  I had a 100% with Key Bank on my house in Memphis before I moved last summer and I know they still offer them as of a couple months ago.  I would just google high ltv HELOC and see what you get for results.

Curt Davis · Answer

I dont know if any banks doing a 90% for a HELOC.  I did one on my primary a few years ago and the  best I could get as 75%.  If you can get 90% thats great but a long shot.

Good luck!!

Curt Davis · Answer

Doing a HELOC would be a good way to go but its not like you will have access to $300k.  What they would most likely do is give you a 75% LTV -current balance so you would get around $117,500 in a HELOC amount.  Guessing your rate would be attached to prime rate.

Also, if you purchased a duplex using an FHA loan, do you not have to live there for a minimum of at least 1 year?

Good luck

How can I best use my $300k in equity for down payment

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