I'm looking for some ideas on how to handle the financing side of a rental I own. It's our first RE investment and I think it's been a good one so far. We bought it just over a year ago, using a HELOC on our primary residence as down payment. The whole thing felt kind of "can't believe this is allowed" but all went smoothly. We live in a hot rental market (as well as a hot home-value market) and had built up a bunch of home equity in our house quickly so we flipped that into the rental. The rental was financed with the HELOC for downpayment then a conventional mortgage for the balance. The house is pretty new, built in '07 so there were many big repairs but lots of aesthetic stuff to do. I tore out the backyard weed-forest and put down sod, sprinkler system. Painted all over inside and then just put in laminate floors after our first tenants moved out. We have new tenants signed through next June and it's cash-flowing about 200$ after paying the mortgage, the interest-only HELOC payment and ~8% set aside for repairs, vacancy etc.
My big question is would people recommend refinancing the HELOC? If paid off inside of 2 years, we owe fees on it that we didn't have to pay upfront (I think about $2000). My thought was at 2 years (basically 1 year from now), I'd try to refinance it into some kind of more traditional principal+interest loan, as I don't like the idea of a looming increase in payment down the road (HELOC bumps up to include principal at 10 years). Also would like to return the equity to primary residence to maybe do the same thing again in a year or two. I think the rental house would now appraise for high enough that I could borrow to pay off the HELOC and still be at 20% equity.
Would people recommend refinancing this? And if so, what type of loan? Home equity loan?
Thanks, this place is an amazing resource for people like me.
@Ed Sylvester, great question. Great job on all of the work you've done so far. I'd refinance just to get out of the HELOC, honestly. However, I'm pretty debt adverse. I would refinance into whatever option would allow you to keep the most amount of money at the end of the month. I'm going to follow this to see how others weigh in.
Thanks @Ryan Ingram , appreciate your thoughts.
Another option would be to sell, which would be nice in that I think we'd gross ~$60-80+K before selling fees/commisions, etc (after essentially 0$ cash out of pocket, not including a good bit of sweat equity) but then we'd be trying to find another good investment property in an obviously inflated market. Not really in a rush to do that.
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