Would you rather? Sell, refinance, or rent out old primary...

Question

My current primary residence is worth $250,000-$275,000 and I owe $118,000. We just closed on a new home and didn't have time to refinance the current primary due to other loans closing. Now we need to pick our best route forward to continue our investing. The house in question is in a highly desirable neighborhood and has been fully remodeled. Also, we are long term buy and hold investors with a current mix of single and multi-family homes and. We're set to close on a 4-plex in January and will be ready then for financing needs. Would you rather...

1) Rent out property and do a cash out refinance at 70-75% LTV leaving $50,000-$75,000 for investing and about $200 cash flow per month.

2) Sell the property and get between $120,000-$150,000 (For sale by owner) for investing

3) Find a HELOC product for an investment property

4) Rent it out for 1-2 years and then sell to avoid capital gains and allow for appreciation or at least re-evaluate.

I would love to hear advice and also stories about what options you have chosen and how it's worked out for you.

Avery Carl · Answer

What about keeping it and renting it out, and getting a HELOC on it so that you can scale further? It was difficult to find, but I found that PenFed will do a HELOC on a financed non-primary home if you own 3 or less financed investment properties. I prefer HELOC's to cash out refi's if I can help it because with a HELOC I can pay it back and use it again and again for more investments. With a cash out refi you can only pull the cash out once.

Daniel Haberkost · Answer

In my opinion, keep it and refinance. If it's a nice house in a nice neighborhood that's the type of RE to keep! Especially if it still cash flows after the refinance. My personal opinion on single family homes is (generally) the real wealth building comes from the amortization/appreciation over time. So if you're a buy and hold investor as well, I would take that route.

-Dan

Aaron K. · Answer

I'd rent it out, it may not be the best investment for the long haul, but I'm all for minimizing transaction costs.

Mary White · Answer

I do understand that I should've refinanced before purchasing the other home. The problem with that is that we've been casually looking for a new primary residence (for 5 years) while non-stop refinancing properties all year long. The right house came along and we were able to offer on it before it hit the market. With a tidy 45 days to close and a 4-plex also in the works, there just wasn't wiggle room to make a HELOC work. I didn't "hose myself," I made an educated decision that was best for my family. Also, I don't understand why what I owe doesn't matter. What I see is that I do have $125,000 in equity and that gives me options (which is a good thing).

We bought the house as a foreclosure with $3000 down in 2011. About a block away they are filling up a big farm field with $350,000 brand new homes with the same square footage. My gut move is to keep it. Thank you for the HELOC advice but we do own more than 3 financed properties. I suppose I could talk to PenFed and see if they'd work with us. Do they work in Oregon? Does PenFed also do investment cash out refinances?

The house would cash flow $700-$800 per month not refinanced and $200-$300 with a refinance. Also, our new home has 1000 square feet of unfinished space that will allow for a hefty HELOC in the future.

Colleen F. · Answer

If you are going to sell it eventually (1-2 years)  I would sell it now if you expect  to have capital gains and want to sell it as a primary.   It won't be as good condition if you rent it for a year or two. You will need to clean it up now for rental and in a year or two for sale.   Now if you will keep it long term, just keep it.

We did take a bit of a hit on an property we kept for a few years, rented,  and sold because the market changed but of course it could go up.  With new inventory in the area it is hard to know.

Bill B. · Answer

What you owe doesn’t matter, what you paid does. If you have over $100k in appreciation sell. It will take too long just to earn back the tax you avoid by selling.

If it’s less than $100k gain and you’re still in the area just rent it out. I wouldn’t even bother with the refi or the heloc unless you NEED the cash as you’ve hosed yourself by not refinancing prior to moving with non-owner occupied rates anyway so just get a new loan on the next purchase.

Would you rather? Sell, refinance, or rent out old primary...

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