Flip n hold my own house?

Question

So we owe $48k on our primary home.  I've got $50k in capital to work with.  It's a 3x2 but if I remodel the place I can add an extra room after I redistribute the space correctly by changing the layout of the house.  So 4x2 at the end with an ARV of about $190k possibly $210-$220k.  I'm getting anywhere from $30k to $50k on estimates from contractors. I want to do the remodel then pull the equity or get a heloc so I can start investing.  Good ideal?  Why yes/no?

Efrain Torrez · Answer

@Jonathan Greene

Yes the remodel would be something we need.  It was either get into a new home and rent our current one or just stay and remodel this one.  I've been improving my credit score but I'm still not where I need to be to get a loan.  That's the reason I'm leaning towards remodeling the house.  I'm just wondering if financially in a year or so when my credit score is good enough I can pull the money I put in and then some if possible so I can invest in a duplex or 4plex.  Or do we just kind of keep dealing with the space we have now until we have to in order for the finances to make sense.  Does this make sense?

Efrain Torrez · Answer

Thank you guys for your input.  If anyone has anything else please let me know what you think.  This is how I see it.

Current loan:                     $48k

Rehab cost:                        $50k (at most)

ARV:                                     $190k

Cash out refi @70% LTV: $133,000

133,000-48,000-50,000= 35,000

So together with our original investment we'd now have $85,000 to invest plus a newly remodeled house with the space we need.

Jonathan Greene · Answer

@Efrain Torrez just from what you said, it might not work out equity-wise the way you want to pull out money, but if it makes your home better for your family and will keep long-term selling options scaling up, it sounds like a good win done the right way. It'd be hard to say on the refi without knowing the full scope, completion, and block values.

Jonathan Greene · Answer

If you are flipping your home just to pull equity, that equation won't usually work out. If it's not for enhancing your overall living experience and just for value, it's best to wait until you are ready to move and then do the work so you can get the max benefit at the end and on your sale price. The margin is just too small to spend 30k to up the equity just a little bit to then pull it right out, which is not guaranteed.

Efrain Torrez · Answer

@Jordan Deeney @Geoff K.

According to the zestimates its worth anywhere from $90k to $100k.  A couple realtors both told me that if I wanted to sell it as is I could get $110 to $120k for it.

Jordan Deeney · Answer

Hi @Efrain Torrez. Ya, we really need to know what it is worth now vs the arv. The big question is what the return in equity is vs the money you spend on the rehab. And we need to know what your scope of work looks like. I am unclear if you're doing a full remodel or just trying to accomplish adding a bedroom. Like @Geoff K. said, it doesn't look like it makes that much since to spend that much just to add a bedroom. We just need more information to assess your situation.

Geoff K. · Answer

What is it worth now? If all it is worth now is $160, then spending $30 to get to $190 doesn’t make sense to me. But it is also your primary residence and there are mental benefits to having the house like you want it. But I’d probably keep your capital accessible unless you really want to remodel your home — which I am sure you know is stressful if you are living in it.