Hello, I have been listening to bigger pockets for almost 2 years now but this is my first time on the forum. About a year ago my partner and I purchased our first piece of real estate, a duplex in the Lincoln neighborhood. We did some renovations to the property before moving into one of the units and feel we are close to wanting to access the equity for our next multifamily purchase. Any advice as to what our next steps should be is appreciated! Refinancing vs HELOC? Referrals for mortgage brokers who work a lot with BRRRR investors? Or even like minded locals who want to say hi! Thanks in advance!
It depends on how much equity you currently have, the interest rate you had for your current duplex, and what is your current debt to income.
For the first 7 years, a big chunk of your monthly mortgage payment is allocated to interest. If refinance will save you a lot on interest (you can consider that).
For HELOC, I will not consider that unless you can pay back the HELOC in 2021. Current interest rates are historically low, and we are expecting it to stay low through 2021. That said, no one knows what is gonna happen in 2022.
I will send you a message for a lender. She can run the two scenarios for you, and once you put the numbers side by side, the answer will be clear!
It depends on how much equity you currently have, the interest rate you had for your current duplex, and what is your current debt to income.
For the first 7 years, a big chunk of your monthly mortgage payment is allocated to interest. If refinance will save you a lot on interest (you can consider that).
For HELOC, I will not consider that unless you can pay back the HELOC in 2021. Current interest rates are historically low, and we are expecting it to stay low through 2021. That said, no one knows what is gonna happen in 2022.
I will send you a message for a lender. She can run the two scenarios for you, and once you put the numbers side by side, the answer will be clear!
Congrats on the home and welcome. Sorry to answer questions with questions, but - do you have any idea what you could sell for/how much equity you have available to you? Where (what bank) is your current mortgage? What is your current interest rate? A traditional refi won't free up immediate cash, but depending on your current rate, as Sherief said, it could save you some money. I love-love-love my HELOC - and got it through Umpqua. I can send you some contacts if you'd like, but would always suggest looking at local banks (Umpqua, BECU, People's) etc... and developing a relationship.
HELOCs are better meant for something where you can pay it back within a year, such as BRRRR (where you recoup your down payment) or private lending. If you plan on using it as down payment on another property and it's going to get stuck in there, then it's best just to do a cash-out refinance. You don't want to be stuck in a variable rate product long-term.
Or... depending on what your current rate is, do both (refinance into a lower rate and then put a HELOC on top). If you're going to go the refinance route, I can recommend a mortgage broker that's fast and has good pricing. As an investor, you want someone that can execute, not just someone that taunts low rates but takes months to close. She's the only one that I've ever seen get loan docs out (on a conventional cash-out on a primary) to escrow in 3 business days (from quoting the client). Of course, due to conventional guidelines on mandatory waiting periods (for primary residences), the borrowers had to wait a few more days to close. I doubt she closes every deal like this (i.e. can't do much when you have to rely on an appraiser), but to witness this instance was amazing.
For a HELOC, go with the local credit unions. BECU is the most popular, but that was pre-COVID... nowadays they're all over the place.
@Christen G. Thanks for your response. I don't have a great idea of the ARV. We will get an appraisal after the weather allows us to paint the exterior. Our current mortgage is with round point at 3.25 so I don't think it is worth it to refi purely for the lower interest rate.
@Nghi Le thank you for your response! I had hoped I could BRRRR this property with some success. I realized that some of the improvements were made to make one of the units comfortable for us to live in long term and that we wouldn't get all of our capital back from refinancing. Doing the numbers now it seems my issues are that we 1) paid market value 2) paid 15% down making it harder to get the money back out considering the banks would only mortgage 75% of the value.
My goal is to successfully BRRRR the next deal. With that in mind what would you recommend?
@Christen G. Thanks for your response. I don't have a great idea of the ARV. We will get an appraisal after the weather allows us to paint the exterior. Our current mortgage is with round point at 3.25 so I don't think it is worth it to refi purely for the lower interest rate.
Agreed on that refi. What's Redfin / Zillow saying? It's usually within $6-8k
@Nghi Le thank you for your response! I had hoped I could BRRRR this property with some success. I realized that some of the improvements were made to make one of the units comfortable for us to live in long term and that we wouldn't get all of our capital back from refinancing. Doing the numbers now it seems my issues are that we 1) paid market value 2) paid 15% down making it harder to get the money back out considering the banks would only mortgage 75% of the value.
My goal is to successfully BRRRR the next deal. With that in mind what would you recommend?
Theoretically you could rate-term into a loan at 85% LTV on a duplex that you're living in. However, you'd probably want to cap it at 80% LTV to get rid of PMI. I imagine you're paying for PMI right now?
You do need to know your ARV in order to know your LTVs and whether it's worth it to refinance. A website like Pellego might help, but a CMA from an investor-agent or a full appraisal would be more accurate.
@Nghi Le I am paying about $40/month in PMI so I never understood the aversion to it. When we originally purchased it made more sense to keep the 5% in the bank for renovations.
Thank you I will check that out! Aside from first hand experience I wasn't sure how to learn how to calculate ARV.
I would actually have a detailed conversation with your lender about what your ability to purchase another property would be if you refinanced or did a HELOC. Having a clear idea of your buying ability can help dictate your next step what to do in your current situation. For instance, if there is a strong prospective property in mind that you would like to acquire, it could make sense to max out your LTV on your current property in order to make the next purchase. Of course, this would all depend on if your DTI to qualify for your next purchase can tolerate maxing out your LTV.
Side note on your next appraisal: when you have your property appraised, I always find that it helps to do some legwork prior to your appraisal and dig up very strong comps for them to use as well as itemize the list of improvements you've made to really sell the increase in value. Best of luck!
@Lawrence Dy thank you for the reply! I tried to go over this strategy with my mortgage broker when we purchased and didn't have much luck. The response I basically got was "yea that's a thing people do" and then he just moved on. Which is why I'm looking for recommendations for someone who is familiar with BRRRR investing.