primary residential refinance

26 Replies

New to this community, looking forward to connect with ppl in MN or TX!

Question: bought my house in the cities for 280k, Zestimate shows 350k after four years, 15yr mortgage has 200k balance with 3% APR and high but manageable monthly payments. what do you suggest:

1. Do nothing, pay off mortgage in 11yrs

2. Refi (30yr sub 4% APR available), if so, what to do with the money next?

3. Sell and reinvest, in a bigger house to appreciate or rental properties.

Currently very busy with a great job and good salary. Never done REI but willing to learn gradually.

I appreciate detailed answers as I’m new to the terminology.

Thanks!

@Ali K.

UPDATE: add these options to the above:

4. Wait a couple more years to build more equity with the low APR mortgage and potential appreciation, then consider options 2 or 3.

5. Other options that I’m missing.

Thanks!

Either refinance to get some extra money or get a HELOC (what I'm doing), which is practically the same thing but with more flexibility. Then start investing with your favorite real estate investment method. I'm going to do BRRRR because I want to build a large portfolio of cash flowing rentals as quickly as possible and recycle the same capital over and over.

@David Ripplinger

thank you David for the answer. HELOC is actually something that I was missing. I indeed am leaning to option two but due to the low APR and my currently busy schedule option four sounds very appealing too. I think the market has a little more potential for growth unless it hits the end of the cycle soon. any thoughts on that?

@Jordan Moorhead

Thanks Jordan for the answer. The house is in a nice, safe, but affordable neighborhood. I’m not sure if it works well as rental, most people in my neighborhood afford to purchase a house. Potential for rental is actually something that I need to learn more about.

I am open to househacking if a right house is found. Thing is there aren’t many good options in central Metro or NE Minneapolis. However, I’m sure I’m not familiar with all the neighborhoods and I am open for suggestions.

If you feel too busy to start out right now, that's a legitimate concern. But don't try to speculate on appreciation ever. We simply don't know when the next downturn is. Also, if you felt you have enough time to get started now, I'd say that waiting 2 years so you have more money is just 2 years you've lost for BRRRRing or flipping or whatever you plan to do.

If your schedule is indeed too busy right now, that's fine. You don't want to burn yourself out. An alternative option during the time you feel too busy is to invest more passively by lending your money to other investors here on BP. (This is what is often referred to as using private money to fund a deal. You'd be the private money lender.) That way you get to real some of the rewards of real estate investment without doing any of the work whatsoever. It's common for private money lenders to get back 8, 10, 12, or even 16 percent, just depending on the agreement you reach with the investor. Since I'm still new at this and haven't quite done my first deal, I personally don't feel comfortable yet using other people's money. But if this is something you want to try, I know a couple people on BP who I trust and do a great job outlining specific deals to lenders so that they know it's a safe investment. I'd be happy to share their contact info with you if you decide to go that route.

@Ali K. people will absolutely rent in those neighborhoods. My old broker has a $600,000 house rented for $3500 a month in Excelsior.

Those parts of Minneapolis are where I find most good househacking opportunities!

You should have no problem finding renters in that area.  Checkout other listings on craigslist, etc and see what you can get for rent.  Depending on the rent vs your mortgage it could work as a rental.   1% rule doesn't work in every situation don't focus too much on that.  All my properties cash flow decent and don't meet the 1% rule.

If you are too busy to manage rentals but want to get in I suggest you get a HELOC on your house to have funds available and look for a managed rental or look into joining a syndication.

@Ali K. where are you getting .6 from? We find 1%  rules all the time. You need to figure out what the rent can be, not what it is now. Lots of older landlords charge low rents because they can make money at that rent and it's easier to keep a tenant than try to get a new one. People get lazy, myself included from time to time.

I would suggest using the calculators on this site to manipulate the numbers to see if they work. If it's a house in good condition and you find a good tenant (good areas attract good tenants typically) you will probably spend less money on repairs so even if the rent is less than 1% you will be able to recoup the difference in the maintenance and property management costs to generate good cash flow.

Thank you all for the suggestions and discussion.

To the rental point mentioned by @Jordan Moorhead@Brent Paul and @Eric Coffin , I am looking at 3,500/600,000=0.58%. The rental estimate that Zillow shows for my house is in the same 0.6 range. I am certainly not familiar with the market and it's good to know that there is potential here in the cities.

To @John Woodrich suggestion about HELOC, I agree that it's a good option as I won't pay interest before I actually use it.

Anyways, I realize that there is much more in REI than to be answered in one question. I am actually facing so many different options and can't wait to gain more education and experience to start. I would like to connect with some local people. Thanks to @Tim Swierczek for his willingness to get connected already.

@Jordan Moorhead I am sorry I was not clear in my post. It was in response to your earlier post that you said you knew someone rented a 600,000 house for 3,500. And I meant to say this is about 0.6% rent and whether this is attractive. My case is different, I am still educating myself and trying to build a network of people.

@John Woodrich I am not familiar with syndication. How does the risk and return compare with other passive investment, say S&P500? And how would you find a reliable local syndication?

@Ali K. oh ok. He didn't buy that as an investment but it was a great way to keep paying down the mortgage on his house he bought for $450,000 that's worth over $600,000. Just an example that people rent anywhere, not an example of a good investment.

@Ali K. a syndication typically involves a limited partner investment into a larger real estate deal.  An example of this would be a syndicator is looking to raise money to purchase 150 units in TN.  They are taking investors at $50k or $100K to get a limited partner interest in the investment.  It allows people to invest in RE completely passively and benefit from the economies of scale.

If you get into a good deal a syndication can easily outperform the S&P 500. Most of the syndicators calculate cash on cash return, IRR, etc to show you what they are expecting to get. Just make sure you are working with an experienced promoter and you believe in the numbers.

Thanks @John Woodrich for the information. From what I hear/read about syndication, I doubt it would be my type of investment at least at the beginning. I have a rather low risk tolerance especially when it involves a small group of people or lending money to one person to manage it for you (unlike mutual funds with a lot of historical and real-time info and many stakeholders). A managed rental, as you mentioned above, sounds more attractive to me. At least you know that you own the property and someone does the management for you. Worst case, you don't make cash flow but you don't loose your property. To the HELOC point, one apparent issue sounds to be its payment in addition to the mortgage, while cash-out refinance means your mortgage payment is renewed. It is a bigger concern when the current mortgage is 15-yr with higher monthly payments.

Maybe re-finance or take out a home equity line of credit and then invest in Multifamily Investment. I would just make sure you are comfortable with more debt. 

@Ali K. Sure payments on a LOC can be higher but it typically doesn't cost anything to setup a LOC and you can always refinance on the back end. This would be a good way to get your down payment funds for purchasing an investment property. The LOC will give you cash to spend, it costs nothing if you don't borrow against it.

The odds of finding a deal, starting the refi process to get cash, then purchasing a property are near impossible. There are plenty of people with money waiting for something to happen, if you want to purchase something in this market you have to act fast. A LOC could be a nice advantage for you.

@John Woodrich thank you for the information. This is absolutely right. I talked with my point of contact at a credit union and they suggested the same thing. In any case I won't have any problem for down payment either through cash or HELOC. However the credit union said that they won't finance investment properties because of the risk to their members. Do you guys have any thoughts on that? Is it common that CUs do not finance investment properties, Or do they have more restrictions for such loans? If so, what would be the options if large banks are not good either?

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