Should I refinance? Investment or primary?

Question

Current properties:

Investment (Value: 550K, Mortgage: 225K, Int Rate 4.5%, (-$200 Cashflow))

Primary (Value: 600K, Mortgage: 285K, Int Rate 3.5% ($0 Cashflow, and I live in it for free)

Goals: Increase net worth, try to purchase another home in August. (will be my new primary) [kinda worried if I'll get approved due to being self employed recently. Working on becoming a real estate agent by June/July]

Lender quoted me to refi for 5%, can pull out about $150k in equity from the investment property.

Questions - would you take that deal? should I try refinancing my primary instead?

What would you do with the extra 150K? I don't need that much for a downpayment.

Conner Olsen · Answer

@Kelvin He I'm worried that if you have recently quit a W-2 job and don't have 2 years of self employed income you won't qualify for any loans. I'd try to get preapproved before refinancing anything.

Jaron Walling · Answer

@Kelvin He My lender requires 25% down for investment properties regardless if you're moving into it. They don't know your plans and they don't really care. Without selling my current primary they require 25%. Given how quickly the rates have increased I'm not interested in giving more money to the lender with closing costs, fees, etc.

Kelvin He · Answer

Oh I didn't know that. How come? I thought I could just keep doing 3%-5% all the way down as long as I kept it as my primary initially and provided proof of a lease contract for my house that I'm leaving

Kelvin He · Answer

Thanks for the reply.

I bought the first property knowing it would be cash flow negative or neutral, I also had the pleasure of living in it for the first year for free thru house hacking and it introduced me to real estate. However, now I'm not sure how I can reap the benefits of the appreciation. What do you think is the best move for increasing net worth - (refi, sell, continue to rent, or 1031 exchange?)

Kelvin He · Answer

I'm gonna go for another primary home to live in, and turn my current my primary into an investment. I was planning to just do 3-5% down on the new primary, would this change your answer?

Also - is it a bad idea to refi my primary, because the rate is already 3.5%, and I would be increasing the rate just to get some equity out.

Kelvin He · Answer

Sounds good, just wanted to check to see if there's an opportunity cost of not taking the deal, but 5% isn't a "cheap" rate to me anymore.. Thanks for the help!

Reid Chauvin · Answer

You don't have to sell your primary to buy another primary. You can buy another primary as long as you intend to live in it. There are caveats though: If you bought it with an FHA loan then you would need to refi into a conventional loan in order to use FHA loan again. And if you refi your current primary with the intent of using the cash out to buy another primary, you will need to refi the current primary as an investment property.

Kelvin He · Answer

Thank you. At the end of the day it is my decision but I do love to hear from others on here. Everyone is super helpful and I like other points of views. Definitely a long game player here so that seems like the move. Thanks again!

Jaron Walling · Answer

@Kelvin He  Don't be pressured by the responses here. If you're in Austin Texas it's probably been a wild ride! That market has exploded in the last few years.

You need to decide the time frame that matches your strategy. If you want quick cash it's time to SELL. If you want to play the long game just hold investment property #1, start cash-flowing (in the future no doubt), and ride the wave. 1031 exchanges are for experienced investors with new opportunities usually lined up. I wouldn't consider that unless you have another DEAL in the works.

Reid Chauvin · Answer

@Kelvin He - I would personally try to come up with the cash to put 5% down without having to refi either property.

Should I refinance? Investment or primary?

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