Refinance and Invest??

Question

So I am somewhat new to the site. I started really looking into REI about 3-4 months ago. Before that, I was just a simple minded home homeowner just carelessly throwing money into my mortgage with no real financial plan in mind. Because of this site, my eyes are opening to endless possibilities of REI, and toward the proverbial financial freedom. Thank you guys!!! However I have a scenario in which I need the community's advice on.

I am sitting on a property that is worth between 600k to 700k. The whole mortgage (1st and 2nd Mortgage) is worth around the 385k range. I am stuck on the ARM (2.78 %) but I am terrified to Refi for fear that my mortgage will go up. Currently it is at $1600 (1st and 2nd). Can anyone please help advise me on what to do? I do want to refi soon before the interest rate bump up which is in the near future. I do generate some sort of income on this property in part of that I am renting a room out to a guest, but I do not want to bank on this person to keep me afloat. I also want to use some of that cash to possibly buy another property. Any advice(s) would be a blessing! Thank you Biggerpockets!!

John Tu Nguyen · Answer

@Marty  L.

Your next move should be talking to your mortgage banker and finding out how much your payments will go up if you did decide to refinance and take some equity out to invest.  If the new mortgage payment is something that you are not comfortable with, then I would hold off on buying anything in the near future.  You can get a free quote from any lender.  I would start there.

In the mean time, I would continue to do homework on what interests you most.  Pick a strategy (fix & flip or buy & hold) and learn everything you can about it.  I would focus on one and become an expert at it.  If you want an active way to invest, then fix & flip would be the way, but if you want a more passive way then buy and hold.

Also, if you want to do it out of state, I would find out as much information about investing in that state before you buy.  Talk to a CPA to see how it's going to affect your taxes and talk to a few realtors to get a better idea of the local market.  Just keep educating yourself and as much as you can while you save up more money to invest.  It's going to take time and don't rush into it because there will always be more opportunities,  you just have to find them.

Marty L. · Answer

John,

Thank you for taking interest in my situation and thank you for the suggestions! As a short term goal in REI, I would like to refi and use that money to attain an income generating property. However, I am concerned that my monthly mortgage will shoot up exponentially.

I have heard that Florida is a great place to invest thru different websites, families and friends, plus no state tax. I am concerned however about REI somewhere in another state. I sort of want to settle locally first but I am such a rookie with the whole thing. I want to do my due diligence first to get the ball rolling. What would you suggest my next move is? Find a deal (fixer upper) and flip that? Or find a decent property that is already set to rent (locally or remote).

Again thank you for your time.

Best Regards

Samuel DeMass · Answer

@Marty  L.,

Good deal.

The great news is you've already started, so that's taken care of, now just go figure out how to finish.

Focus on the one thing that will get you to your goals.  First the Refi, then the HELOC.

I admittedly stole this idea from Gary Keller's "the ONE thing".  It's less a real estate book and more a get stuff done/self help book.

BiggerPockets has everything you need to go out and purchase an investment property with enough knowledge to be successful, all for free.

Good luck!

"Fortune favors the bold" - latin proverb.

-Sam

Marty L. · Answer

Sam,

Thanks for the reply!! The 1st mortgage is thru Green Tree LLC and the 2nd Mortgage is by BofA. To be honest my short term goal is to combine my first and second mortgage and have that as low as possible .   I am right now shopping out which lenders suits best for my needs. I've also looked into HELOC and using some of that money in buying a property that can generate some type of income, but I do not know where to start.  I know status quo is not the answer but I feel ...stuck.

Thank you again

John Tu Nguyen · Answer

@Marty L.

The answer to your question really depends on what your goals are.  It's hard to give recommendations when we don't know where you want to go with REI.

If it was me, I would take a cash out loan on a new 30yr Fixed up to $417K to keep it conforming to get the best rate possible locked in for 30yrs.  The longer you wait the more it's going to cost you in the long run because that ARM will adjust once the fixed period is up and we all know rates will be higher in a few years.  I would then try to get a HELOC behind the new 1st loan and have that line of credit available  to draw from if needed to invest.  I would then either invest in a local flip with partners or buy a rental cash flowing property in another state and start building my real estate empire from there.

Best of luck to you!

-John

Samuel DeMass · Answer

@Marty  L.,

Welcome to the site!

You've landed at a solid spot for a wealth of information on REI.

I'm not a mortgage expert, but I'd imagine you could probably get a refi on a property with that kind of LTV ratio with no problem.  You could probably even do a normal conventional at a low fixed rate.  What types of lenders hold the 1st and 2nd currently?

I think you also probably need to identify what your goals are in terms of what you are trying to accomplish?  For example, are you just looking to lock in a rate long term for the remaining principle on your home loan or are you looking to take money out of the refi?

I like a couple ideas I've picked up from the site that suggest using a HELOC (Home equity line of credit) to pull out equity to use for good value acquisition, refinance the acquisition and then pay off the HELOC to start the process over.  I think you probably have enough equity position in the mentioned property to be able to pull this off.  I tend to think this is a great option to start investing with what you have locked up in your home.

Good luck!  Keep us posted.

-Sam