Refinance Question - DC Condo

[Joel Erwin]

Hello,

Over the last few years, I have inadvertently stumbled into DC rental real estate investing, and now I’m hoping the more knowledgeable folks here can give me some ideas on how to proceed.

In July of 2013, I bought a 2 bed / 2 bath condo a couple of blocks south of Petworth metro. I originally intended it to be my residence, but had to go overseas, and now it's rented out, and has been for the last 4.5 years continuously. Cashflowing pretty well and has also appreciated a lot. I used a 5/5 ARM to purchase. 2.875% for the first 5 years, can adjust up to 2% at each 5-year juncture. The area seems to be really coming up, so I'd like to hang onto it. I have around 35% equity.

Here's the problem: The first rate adjustment is coming up in July of this year, so I thought it would be a good time to refinance into a fixed-rate. However, none of my current banks will refinance a rental condo, only rental houses.

I guess the forum rules don't allow lender questions, but can anyone recommend a way to go about refinancing a rental condo? Really just looking for confirmation that it's possible, as so far every bank I've called has full-stopped me as soon as I said "condo"

Thanks,

Joel

[Cesar S.]

Yes I believe TD Bank and Penn Fed both do it but the rates are higher than owner occupied so you'll have to live with that.  I'm sure there are others but yes it's possible.  The only issue is if it's "non warrantable" then that may be an issue but there's always a way.  You'll just pay higher rates.  Hope that helps!

[Russell Brazil]

Honestly even if you hit the maximum reset of 2%, 4.875% is better than what you are goimg to get on an investment property right now. Youd probably be lookong at 5.25% to 5.5%. So id just keep your current loan.

On anothet note, I also have a 5/5 arm. I think its the coolest loan product out there.

[Joel Erwin]

Appreciate the feedback - I hadn't realized refinance rates would be that high, so maybe it's better just to sit tight on the likely 4.875%.

That said, I could be having the same worry 5 years from now if rates continue higher.  I did find one bank that would refinance to a 15-year loan at a good rate, but that would involve throwing a lot of cash into principal to get the payment down to the point it keeps cashflowing strongly.

I've only ever bought two places, this rental and the one I'm in now, but I had considered buying a 3rd place in DC before my next overseas stint.  Ideally I'd move into it, then rent it out later on.

I've saved up another $150K or so in cash, which I had intended to use to buy another property. That said, I'm not sure how the ROI in DC is looking at the moment. I know it's typically not great.

I realize this is a wide open question, but I enjoy people's opinions on this board - any thoughts on paying down the balance of the rental to keep it cashflowing versus just buying a 3rd property?

[Russell Brazil]

Originally posted by @Joel Erwin:

Appreciate the feedback - I hadn't realized refinance rates would be that high, so maybe it's better just to sit tight on the likely 4.875%.

That said, I could be having the same worry 5 years from now if rates continue higher.  I did find one bank that would refinance to a 15-year loan at a good rate, but that would involve throwing a lot of cash into principal to get the payment down to the point it keeps cashflowing strongly.

I've only ever bought two places, this rental and the one I'm in now, but I had considered buying a 3rd place in DC before my next overseas stint.  Ideally I'd move into it, then rent it out later on.

I've saved up another $150K or so in cash, which I had intended to use to buy another property. That said, I'm not sure how the ROI in DC is looking at the moment. I know it's typically not great.

I realize this is a wide open question, but I enjoy people's opinions on this board - any thoughts on paying down the balance of the rental to keep it cashflowing versus just buying a 3rd property?

 Id absolutely buy a 3rd place in the DC area. If you measure the totality of your investment, mean cash flow, debt reduction, appreciation, rent growth etc you will always make more money in the areas of high demand like DC, Boston, Seattle etc than you will make in a pure cash flow market like you will in the mid west.

There is always the possibility of your rate going higher, but thats the trade off of a lower rate with the arm. Presumably you had a rate 1% or so under the 30 year rate when you got the 5/5 arm. So even if it resets the maximum amount (which it might not go to the max) then over the course of the first 10 years you will have paid the same amount of money roughly than if you had the initially just gotten a 30 year that was 1% higher.

[Michael P.]

I refinanced a rental condo with no issue, but that was 2013 and in Arlington not DC.