HELOC, Refinance or Sell?

Question

I purchased a single family home in 2008 in Corona, CA. for $295k.  Our PITI is $1728  a month and rent is $2150 a month. It was our primary residence until 2013. I consider this rental as a type A property that has rented easily, great location and has appreciated. Comps around the neighborhood are 475K and owe 248K.  What would you do in my situation? Should I sell and use to cash to reinvest, refinance, take out a HELOC or stay put?  Local market is very expensive and I would have to drive 1 hour to a market where that numbers would make sense. Preferably i would like to be within 30-45 minutes drive from my rentals from where I live, Riverside, CA.   Would appreciate your advise. Thank You!

Ben Franco, Jr. · Answer

Thanks! Chris Mason

Matt Morgan · Answer

Any of the Midwest markets should do the trick. Preferably somewhere you already have contacts...you need solid boots on the ground in order to make investing from afar work.

Ben Franco, Jr. · Answer

Thanks guys for the advise. @Matt Morgan Any recommendations on where to buy with solid cashflow if I were to use a HELOC?

Chris Mason · Answer

@Ben Franco, Jr. - anyone sitting on that much equity should 100% of the time have an open HELOC for the most they can possibly get, with a balance of $0.00, at the very least. The $75 annual maintenance fee, or whatever it is, is nothing.

That way if something falls in your lap, you're positioned to make a move and access a few hundred grand of capital (for a down payment) with the click of a mouse, that you are not paying interest on until/unless you actually need it.

Incidentally, my firm doesn't have any competative investment property HELOCs, so do not hit me up for that. When/if that opportunity for a new property jumps in your lap, that would be the time to consider contacting me if you wish.

Matt Morgan · Answer

Your return on equity is pretty terrible so I would advise you unlock some of the capital, either by selling or taking out a HELOC.

I always like the idea of keeping a property and getting a HELOC because you get to reap the rewards of equity without sacrificing your cashflow or the long term benefits of holding property. If you sold the house, your closing costs would eat up some of your proceeds and on top of that you'd have to pay capital gains.

Keep in mind that many think the market, especially in So Cal, is probably nearing it's peak, so if you can't comfortably pay the expenses on that property or you'll have a need to liquidate in the next 5 years, it may just be better to sell high.

By the same token, I wouldn't recommend using any of the equity to buy expensive California assets or low cap rate multi family right now. I'd stick to something with solid cashflow that won't take too much of a nose dive in the next dip and will give you nice returns in the mean time.

Richard Bastar · Answer

Hey Ben, I'm looking to purchase a condo/property in Riverside as the numbers (purchase price) work out better for me, so I agree with you on the 'making sense move.'

If it were me, I would get the cash out, put it down on apartments or a commercial property that paid me a decent, or better in your case, income each month, and perserve that capital.  Not sure how you're set up or what your goals are, but that is something that I'm looking to eventually do (just need a place to live in the meantime...staying with a friend).  The drive may be worth it long term if you would want to live near the property/properties, but you wouldn't live in Riverside.

If you sold it you could move to Riverside for a cheaper property and use the extra to put down on something else also.  Those numbers show you're getting good cash flow, and the further east you go, the better the cash flow you can potentially get.

I'm no expert yet, but have been to local real estate investment meet ups as well as networking a lot and learning what I can as I go.

Hopefully things turn out well though!!