Advice on funds source for next purchase

1 Reply

So, early October my wife and I purchased our first four unit property. We are house hacking. Two of the four units are occupied by us, mostly so we can renovate them and the other two units are rented out. We'd like to update those two units as well, but it is what it is. We purchased the property using my VA loan, zero money down. We paid a few thousand in closing costs, but that's pretty much it. The VA appraiser appraised the property for approximately $30,000 more than we paid for it. Six months from now, I would like to do some sort of cash out refinance to help fund the down payment for the next property.

Here's the skinny. We currently live in Southern California, but it is possible next summer, a few months after our six months (seasoning) is complete, We could be relocating to Texas for work (federal employee). Should I try to do a VA cash out refinance? Or can I refinance out of the VA loan into an FHA or conventional loan with a cash out option if the equity has increased on the property due to the improvements we've made, and the original appraisal, which I stated was $30,000 more than we paid for the property? What if I do a VA cash out refinance in April or May, and then in August I get my orders to Texas? Will that cause any issues with the (possible) new lender? I'm pretty confused on what makes the most sense. Please advise.

I'm just wondering the best way to go about getting the equity to use for the second purchase. I've also heard some people talk about a HELOC. Anything I should no about a HELOC, especially if it's on a property that I could be leaving a few months later?

Thanks in advance!

A HELOC would benefit you greatly, whereas a cash-out refinance would leave you susceptible to unnecessary risk, though without more exact numbers, it's hard to guess what kind of money you might have available in equity.

A four unit property in California could sell for a million dollars, in which case, 30k is three percent of the value, and you could neither refinance or pull a HELOC.

Assuming you have at least 25% equity in the property at appraised value in 6 months time, you very likely would benefit more from a HELOC than a refinance. You benefit because

1. All the equity in the original property remains in the property, giving you more exit strategies, especially in an economic downturn.

2. HELOCs cost many thousands of dollars less to obtain, keeping money in your pockets and out of the bank's.

3. The interest type on a HELOC is consumer-friendly compared to amortization, meaning you can gain equity faster.

4. Appraisers are more conservative on value when appraising for the purpose of a HELOC. (This last can be a buzz-kill for some, but it protects you from overleveraging and losing your property in market downturn situations.

If you have less than 25% equity in the property by the time you are reassigned, you may still be able to tighten your belt, save cash like mad, and buy a property in Texas from your savings since housing tends to be a fraction of the cost in most of the state, Austin being the exception.

Best of luck to you!