Ideas for Direction on Refi and Buy with Very Low Income

Ideas for Direction on Refi and Buy with Very Low Income

Real Estate Consultant · Mena, AR · Member since 2017 · 8 posts · 4 votes

I originally put this post on the BP Facebook group but it isn't getting any action, so I'm trying here.

Hello, all of you savvy and wise investors. I'm pretty new to this group. I've been reading and learning as many posts as I can over the weeks. So, I've decided to take the plunge and create this post in hopes of kind and helpful responses to my position. I need some direction.


My goal would be to move forward financially by purchasing my next multi-unit to increase my cash flow (I'll have nothing else to live on except an extremely small SS). I would like to move to one where I can be more comfortable as I age. I've invested in single-family rentals in the past and have some landlord experience, but now I own only one property in a great location—an old, 2-story side-by-side duplex that I've resided in for the past 16 years. My current tenants have lived here for 18 years. 

My income is very low and I don't see it getting much higher. Therefore, I don't think I would qualify for much at all. However, I do have about 75-100k equity and 750+ credit. My property value is hopefully about 200K (guesstimating). It's just that my income is under 25k. Current tenants pay 850 mo., and I believe I could easily get 1000 to 1200 mo. from my side after I move out. 

I've been looking at USDA (online) running numbers. But I would have to sell my duplex if I go USDA since they would only allow me to own one single-family property (to my understanding, anyhow). To me, that would mean giving up on getting ahead and settling for the one property. I've also considered FHA and conventional. Ideally, I'd refi my current property, and use it for repairs, and down payment on the next property. But again, I think my income is too low. I'm looking at 200-300K multiunits. I'm in West Michigan.

I don't know which direction to go. All kind comments, advice, or ideas are very appreciated. I'm feeling very alone here. Thank you.

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So MD · Member since 2019 · 294 posts · 191 votes
5y

If you can rent your side for $1000-1200 then you're losing income on the $850 tenants. Are the units the same? If the tenant side if smaller, move into it and rent the larger one. It may be hard to do since they are your long time neighbors but are you getting fair market rent? The extra monthly increase can go toward down payment savings. 

What choices do you have for getting to a single level age in place home? If there are multifamily properties available, what would it take to buy them? If they are individual units, is it better for you to live there and give up your 2 story duplex? Since you mention refinancing, you have a current mortgage or a cash out refi? Would selling your duplex and using the proceeds on a downsized single level get you a much smaller mortgage? That's improves your overall cash flow by paying less for your own housing. Are you working with a mortgage broker? They can give you advice on what's available based on your specific details. You don't know what you qualify for until a lender runs your numbers. You don't know if your income is too low until somebody says it is. Don't be afraid to ask.

Since you've been in your place 16 years, how's the roof, porches, HVAC and other major parts of the house? If there are major repairs ahead, selling might be better.

If you can find a good replacement, you can 1031 into a single level duplex, triplex or quad. The rental side would 1031 into the new rental portion and your personal side would be tax free under $250k net profit. A good QI like Dave Foster can walk you through that. Really depends on your market.

Whatever you do do not get a reverse mortgage to tap into current equity. These sound good in the sales pitch but end up being very expensive.

Does your city or state have any lower income housing programs that could help? Do you have a Dept of Aging or Sr services that could steer you to some free help? Best wishes to you! 

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  • So MD · Member since 2019 · 294 posts · 191 votes
    5y

    If you can rent your side for $1000-1200 then you're losing income on the $850 tenants. Are the units the same? If the tenant side if smaller, move into it and rent the larger one. It may be hard to do since they are your long time neighbors but are you getting fair market rent? The extra monthly increase can go toward down payment savings. 

    What choices do you have for getting to a single level age in place home? If there are multifamily properties available, what would it take to buy them? If they are individual units, is it better for you to live there and give up your 2 story duplex? Since you mention refinancing, you have a current mortgage or a cash out refi? Would selling your duplex and using the proceeds on a downsized single level get you a much smaller mortgage? That's improves your overall cash flow by paying less for your own housing. Are you working with a mortgage broker? They can give you advice on what's available based on your specific details. You don't know what you qualify for until a lender runs your numbers. You don't know if your income is too low until somebody says it is. Don't be afraid to ask.

    Since you've been in your place 16 years, how's the roof, porches, HVAC and other major parts of the house? If there are major repairs ahead, selling might be better.

    If you can find a good replacement, you can 1031 into a single level duplex, triplex or quad. The rental side would 1031 into the new rental portion and your personal side would be tax free under $250k net profit. A good QI like Dave Foster can walk you through that. Really depends on your market.

    Whatever you do do not get a reverse mortgage to tap into current equity. These sound good in the sales pitch but end up being very expensive.

    Does your city or state have any lower income housing programs that could help? Do you have a Dept of Aging or Sr services that could steer you to some free help? Best wishes to you! 

  • Real Estate Consultant · Mena, AR · Member since 2017 · 8 posts · 4 votes
    5y

    Glenna, Thank you so much for all of your input. I think I like the 1031 replacement idea. I will look further into it. Is Dave Foster a member of BiggerPockets? I'll take your advice and not consider a reverse mortgage. I have had my numbers run before and my income was too low. I think it's a little higher now, so I'll take your advice there too, and have a lender run the numbers.

    Yes, I have a current mortgage and also a HELOC that has about 4k of credit available on it. I'm not opposed to giving up this old duplex, so long as I'm not making a financial mistake.

    Both sides are not identical. The kitchen and bath are different, and my side has a fenced-in privacy yard and off-street parking. The other side does not. I believe the overall square footage is about the same. 

    Why do I never hear of others BUILDING a multi-unit? Too expensive that way? 

  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Christine Seeley, Indeed I am.  I'll reach out via  pm.  But @Glenna Wood nailed it.  You've got a great situation in that you can sell your primary residence side and take the gain tax free.  And 1031 only the investment side.  And even better you can purchase another duplex with your exchange if the numbers work and live in one side and rent the other just like now.

    The 1031 Investor5137 Reviews
  • So MD · Member since 2019 · 294 posts · 191 votes
    5y

    The "too expensive" to build relies on so many variables. Certainly a plausible idea If you have a good market to build. I was going to suggest that but it would take qualifying for a construction loan and most important, finding a quality reliable GC. And it takes a city or county that is new construction friendly (easy permitting, low impact fees, reasonably priced building lots, etc). Don't have any idea how that fits for your area. In the markets I've been in for 40 years getting permits for a duplex was not possible.  

    There are many simple easy to build duplex+ plans online. A simple 2 BD/2 bath would probably fit for you and many renters. It's harder and more expensive to 1031 into new construction but possible. One of the best investments I ever made early in my life was an owner occupied FHA financed quad. Each was 2br/1.5 baths. The loan was fully assumable when I was ready to sell and I held an owner financed 2nd for part of my equity so I earned interest on it too.

    There a many more steps to building than buying existing property. If you're up for it, check it out. And again your city/state may have programs to help get more lower income, senior friendly housing built. The beauty to building is that you end up with new housing for yourself as you age and a rental that should need very little repair for quite a few years. It add almost nothing to the build cost to design and add age in place features. Best wishes!

  • Real Estate Consultant · Mena, AR · Member since 2017 · 8 posts · 4 votes
    5y

    Thanks, @Glenna Wood. I wouldn't know where to start. I'd want all the answers before I spend all my time and energy! Like you said, "If you're up for it". I appreciate your thoughts. What is a GC?

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