BP,
This past Friday I closed on my 3rd deal since starting to invest in Sept of 2015. My first property was a SFH followed by a Triplex in Thorton Park Orlando. I recently took a break from the 9 to 5 sales role that had funded my first two deals, so when I was getting close to my 12-18 month deadline of another cash-flowing property I needed to get a little creative. I'm currently working with a new tech start-up out of Nashville selling for their Business Development. I still had about 3 months of 'float' money saved and very little for any large cap ex, so replenishing some of that was also in my plan.
After speaking with my agent, lender, and @Dave Foster (who gave some great unbiased advice on a 1031, which I decided against) I decided to do a cash out refi on my Triplex and purchase a Duplex under an FHA loan in an upcoming area in Orlando (Mills50 area). I want to eventually move out of Orlando, but while I'm living here why not use every outlet possible. The Triplex had appreciated at the normal rate and the rents had been raised to market rents since December 2015. It was purchased from two kids who inherited it from their father and didn't want to be landlords. The rents were sitting at $895 where market rents were closer to $1100-$1300 for 2br/2ba.
After reaching out to a few lenders and eventually falling back on my lender from the first SFH, I realized the best idea was going to be doing a cash-out refi on my triplex and move into the Duplex. The cash-out on the triplex allowed me to walk away with money to put down on the Duplex, replenish my emergency fund and 'float' fund, and leave 30% equity in the Triplex. The Duplex worked well because we got a brand new roof, $5200 towards closing (the A/C units for both have about 3 years left), and no other major damage. The bottom unit was pulling in $1225 and no one was occupying the top unit. With that said, once I move out of the top unit, this property will be cash flowing $300-$400. At the end of the day we got the property for $284,000 and the cost appraisal came in at $329,000. Not
WHAT I LEARNED ON MY 3RD DEAL...
1. How the cash-out refi works...
This was the first time I didn't use my own money (kind of). I was still using the equity in my Triplex, but there wasn't an exchange of liquid cash, which made this process much more simple although it prolonged it slightly. If the numbers make sense and the interest rate is significantly lower this is an excellent option! For my lender we could do 15% down without doing an FHA on the Duplex or less if we went FHA. This was something opted for the FHA (the plan will be to try to do a portfolio 1031 in about two years to up the units in my portfolio) which meant the cash out had to align with what I wanted. I also got to dig a little deeper into the income and cost approach an appraiser will use.
2. The power of knowing value...
This Duplex really allowed me to explore looking into the value of a property, putting an offer in, and then adjusting the offer after the inspection. Since the roof had 2 years left and the HVAC was on it's way out, I was able to change the offer and provide a legitimate reason why I was coming in under list and why I also got a new roof out of it. This just supports a lot of the examples on BP, where if you come into a deal with your guns at the ready and your information supporting you, you can really walk away with an awesome piece to add to your portfolio.
3. None of my own money was exchanged...
I've read Investing in Real Estate with little (or no money) down, but hadn't explored one of the options until now (primarily because of the funds coming from my last job). It's a testament to if you want it, you will get it, you just have to figure out how!
