How do I use my first property to buy my next?

Question

I bought my first duplex in Minnesota in October, 2016. I lived there for a full two years, and then I moved to Chicago to be with my gf/fiancee. I rented out the unit that I was living in, so it's fully rented now.

Rent roll = $1,975/mo

Zestimate = $217,231

Remaining Principal on the loan = $105,165 (30 yr-fixed, 3.625%, no PMI)

I know I could sell it. I would get the capital gains exclusion on the unit I lived in. I'd rather hang on to it if I can, though. How could I go about tapping the equity to buy another property down here in Chicago?

Thanks,

Eric

Tim Swierczek · Answer

@Eric Bate based on the numbers you provided you could do a refinance and take cash out to support a down payment on a new property in Chicago. There are several ways to do this. A traditional refinance would likely be your best bet because even though the interest-rate would be higher there would be no mortgage insurance in your net cost would be slightly higher than what you're paying on the money now. With this amount of equity you could take a HELOC but the terms and investment properties for he locks are awful end it would come with several downsides I don't like it much.

If you’d like some examples please PM me

Jeff Burdick · Answer

Don't trust Zestimates. In my experience, they're largely inaccurate, sometimes by huge amounts of money. Have a quality agent/broker give you a CMA on it to get a more accurate idea of its value.

If you're living in Chicago, who is managing the property in Minnesota? There are some out there who can successfully manage units from afar, but IMO, that is a very challenging job.

Others have offered quality advice. Cash out refi seems to be the way to go.

Brie Schmidt · Answer

@Eric Bate - You can do a cash out refi at 70% LTV or check out pen fed credit union as they do NOO Heloc

Jordan Moorhead · Answer

@Eric Bate I’d refinance. As mentioned Zestimates are not accurate so I’d do some research to figure out what it’s worth. @tim Swierczek can help you with the refi

Derek Dombeck · Answer

Eric,

Start making offers in Chicago that pledge your collateral un MN. Example...... make an offer on a 200k property where you will bring in 80% bank financing if the seller will carry a 2nd mortgage secured by the property they are selling to you AND your MN property. This is extremely safe for them because you are cross collateralizing to secure a 40k loan (in this example) with over 100k of equity. It's a good structure for you as this loan doesn't affect your credit and you achieve your goals of buying more without selling what you have.

Michael Facchini · Answer

@Eric Bate, this looks to be a good candidate for a cash-out refi, as suggested above. Up to 70% LTV on multi-unit investments is common and will have the most attractive rates, but there are options above that at slightly higher rates....and assuming the money is going to good use, then perhaps worth considering.

How do I use my first property to buy my next?

How do I use my first property to buy my next?

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