Balloon balance due what's my best option?

Question

I have a property on Kauai that is up for refinance this next year. We owe 185k and the property is valued at 885k. We only have a tiny house as of now, but the infrastructure in place for a 5 bedroom dwelling. What should I do with the equity? Should I use it to build the big house and house hack (probably around 500k) ; or should I just take out enough for a down payment on a new property. Thoughts...

Rene Hosman · Answer

@Chara Hornbacher what are your ultimate goals? I think Dave Meyer's book Start with Strategy could be useful for you as you think about options.

Do you want to live here forever? Do you want to be as liquid as possible? Do you want to bring in an equity partner to fund the house build to rent out and you retain some equity? You have a lot of equity so you have a lot of options. Most importantly you need to think about not just what your options are, but what your objectives are and let your end goals help you decide.

Drago Stanimirovic · Answer

Hi Chara,

You have a solid equity position with about $700k available. If you’re aiming for growth, house hacking by building the 5-bedroom home could generate strong rental income and increase the property’s value long-term. However, it comes with higher risk and upfront costs.

If you prefer diversification, using equity for a down payment on a new property spreads your risk and potentially opens up additional revenue streams through rental or appreciation.

It comes down to your risk tolerance and long-term goals. Want higher reward? Build. Prefer steady growth? Buy another property.

I can assist with financing options on either route, let me know if you'd like more details!

Best,

Drago

Chara Hornbacher · Answer

OK background. We purchased the lot with some friends and completed a CPR and now have 2 separate deeds. This is how we were able to get the large amount of equity. We purchased under a land loan with a 7 yr balloon at 5.95%; it is due 7/2025.

We have installed a permitted tiny house on the land, water meter. electric meter (that can accommodate a large house), and a 5 bedroom septic.

Our main issue is financing. We are low income so when we go to refinance we will probably need to do a construction loan and use projected rental income to cover the loan. We do qualify to refi without adding but we are then paying the mortgage out of pocket.

Our thoughts are to use the existing infrastructure to build out the 5 bedroom house, then house hack. So far what I'm finding for cost is 400-800 per sq ft to build.

Other investment ideas we have are a rental in Oregon near family or a second home here on Kauai.

Benjamin Aaker · Answer

You could start by telling us a little more about your current mortgage. What is the rate? Have you talked to contractors about the cost to build? Are there other investments you have found?

Chris Seveney · Answer

Not enough information for anyone to determine what to do as this would be based on your financial situation, income, and personal choices along with not knowing anything about what you would build, what it is worth etc. So to answer the question, who knows. Its like asking whats a better career for someone who you know nothing about and they say they want to play in the NBA but you learn they are 4 feet tall.

Balloon balance due what's my best option?

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