Investor · Nyack, NY · Member since 2020 · 34 posts · 36 votes
Hey everyone!
I just got a heloc on my primary residence of 150k. For the first year the rate is locked at 2.99% then of course goes to prime after.
I’m thinking of putting a cash offer on a duplex which I can potentially get at a discount if it’s a cash offer. Then immediately after I would go to one of the lenders I work with for a cash out refi with hopes the appraisal is as good as I believe it to be. The property is pretty much turnkey so I doubt I’d fix anything big and is currently rented out below market.
Just wanted to know your thoughts on going this route of buying outright to refi, or just buying with a 20-25% down using the heloc and just have a mortgage on the property. (Only reason why I’m not fond of this is having to pay the interest on the heloc and the mortgage)
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
4y
There is nothing wrong with this strategy, but I have concerns with some of your tactics.
The key part I don't like about your plan is your "hope" the appraisal is strong. Hope is not a formula for success. If you were using a mortgage to buy this, the lender would require an appraisal and you would know in advance if it made sense to move forward.
To ensure you have a deal, get an appraisal immediately. Let's say you got under contract for $150K but your appraisal comes back at $100K. It would be better to walk away and leave the earnest money behind than buy and immediately lose $50K in equity. Replace "hope" with "facts". There is a cost for doing that, but it is much cheaper in the long run.
Related to that, interest payments are just a cost of doing business. If your business plan is solid, that should be no big deal.
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
4y
@Brian Cerezo you can't go wrong either way, assuming the numbers work. In my opinion I'd go with option #1. Close in a HELOC and then refi afterwards. It will make your offer more attractive. You may be able to get a better price and close quicker.
Option #2 is more expensive, but it's little to no money out of pocket for you. Your cashflow will suffer but your ROI will be strong.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
4y
There is nothing wrong with this strategy, but I have concerns with some of your tactics.
The key part I don't like about your plan is your "hope" the appraisal is strong. Hope is not a formula for success. If you were using a mortgage to buy this, the lender would require an appraisal and you would know in advance if it made sense to move forward.
To ensure you have a deal, get an appraisal immediately. Let's say you got under contract for $150K but your appraisal comes back at $100K. It would be better to walk away and leave the earnest money behind than buy and immediately lose $50K in equity. Replace "hope" with "facts". There is a cost for doing that, but it is much cheaper in the long run.
Related to that, interest payments are just a cost of doing business. If your business plan is solid, that should be no big deal.
There is nothing wrong with this strategy, but I have concerns with some of your tactics.
The key part I don't like about your plan is your "hope" the appraisal is strong. Hope is not a formula for success. If you were using a mortgage to buy this, the lender would require an appraisal and you would know in advance if it made sense to move forward.
To ensure you have a deal, get an appraisal immediately. Let's say you got under contract for $150K but your appraisal comes back at $100K. It would be better to walk away and leave the earnest money behind than buy and immediately lose $50K in equity. Replace "hope" with "facts". There is a cost for doing that, but it is much cheaper in the long run.
Related to that, interest payments are just a cost of doing business. If your business plan is solid, that should be no big deal.
So it’s not a hope. Just the comps around the area aren’t really there. I haven’t seen many duplexes in this area and the few I see range from 80-120k. The current rents are 535/month so overall 1070. If stabilized they are closer to 750/unit .
my plan would be to offer 80k cash. Take it or leave it. Of course still do my inspections and due diligence. So I feel like no matter what I should be ok. I either get all my money back with the higher appraisal and if the appraisal is on the lower end. I’m just stuck with option 2 pretty much
There is nothing wrong with this strategy, but I have concerns with some of your tactics.
So it’s not a hope. Just the comps around the area aren’t really there. I haven’t seen many duplexes in this area and the few I see range from 80-120k. The current rents are 535/month so overall 1070. If stabilized they are closer to 750/unit .
So you just came across one of the biggest problems with Plexes. If there aren't that many, the comps can be hard to find, and therefore the valuation can be volatile. I know plenty of people, that went to refi a few months after purchase and their property appraised for lower, even though houses in the area were appreciating. Again, talking to an appraiser may be money well spent.
Investor · Nyack, NY · Member since 2020 · 34 posts · 36 votes
4y
@Greg Scott yeah makes me want to stick with what I know with single families but… I keep wanting atleast one but I also don’t want that one to be a money pit I could have avoided 😅
Investor · North Augusta SC · Member since 2022 · 30 posts · 18 votes
4y
Good advice from @Greg Scott "So you just came across one of the biggest problems with Plexes. If there aren't that many, the comps can be hard to find, and therefore the valuation can be volatile. I know plenty of people, that went to refi a few months after purchase and their property appraised for lower, even though houses in the area were appreciating. Again, talking to an appraiser may be money well spent."