All Forum Posts by: Brad S.

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It definitely doesn't hurt, and always a good idea to point out finishes, amenities and features, that the Appraiser may miss. But, more importantly, is to point out which comps are in similar rehabbed condition that sold for the price you are hoping yours to be valued at or above. Also, if you recently bought it in poor condition, point out why it sold for so cheap when you bought it. you may want to summarize your main points separately and briefly. Nothing worse than being handed an inch of paperwork, of information, of which they already have access to (mls listings/sales details, etc), and/or overwhelming them with info they don't have time to even look at and therefore, may miss some of the main points you are trying to convey.

But, bottom line is, value is best represented by what similar properties (similar gla, lot, location, condition, quality, views, etc) recently sold for. 

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The problem with this is they were "off market." 

Here's the first part of the definition of market value used in an appraisal.

"The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus."

 "Off market" deals are not subject to the same market forces, as a listed property on the open market.

@Will Gissendanner

I agree with @Charlie Tunstall, I would think about putting less money into the deal, at least at the beginning, and keep a chunk on the sidelines for reserves and/or capital ready-to-deploy. I would acquire the property with a reasonable down payment and purchase-money loan, to get the best rates and put the left over cash aside. You always have the option to pay down or off the mortgage, later, if you change your mind. But, the cash-out interest rate will probably be higher, if you paid all-cash and decided you wanted to get a cash-out refi later. 

Your costs for doing it this way will be the loan costs and interest payments, so I would think about a way to counteract that with some of the cash leftover.

Also, as a new rental property owner, you may not be aware of the potential issues that can spring up, even on a recently remodeled property.

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I'm only going to address your original question, but, as others have said, it is important to be clear on your goals. 

As to your question:

The answer is pretty simple - ALWAYS refinance if you can get a lower rate with low fees, etc. It would be important to know your current rate, balance, and new proposed rate and loan fees. But, don't get caught up on restarting the 30 year clock, because the refinance DOES NOT extend the loan, only paying the new lower payment extends the loan. 

In other words, think of the new lower payment as the minimum payment you are required to make, but you always have the option to pay additional principal (i.e. higher payment), which would pay off the loan sooner than 30 years. You can find a mortgage calculator that will allow you to put it additional periodic principal payments and show you when it would be paid off based on those additional payments.

Example: 

Original 30yr fully amortized loan amount - $200,000 @ 4% = Payment of $954.83/mth

Balance after 21 years = $85,480.69  (@ 9 years left to loan payoff)

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New 30yr loan of $85,480.69 @ 3.5% = Payment - $383.85/mth, (payoff in 30 years)

If you paid an additional monthly principal payment of $570.98, or a total of $954.83/mth, your payoff would be in 8yrs and 7mths

A NO-BRAINER!

Then the questions become, do you take cash out, do you pay additional principal, do you enjoy more cashflow, etc. But, whichever you choose, you are saving on the amount of interest you pay! 

Sounds like you have a good idea (generally) of what you would like to do. And, it looks like there is a lot of good advice in the replies.

I would start at the simple, granular level. Like, how much money do you need to cover living expenses, how much do you want to make over and above expenses, what do you want your day to day activities to look like (Do you want to deal with tenants directly, do you want to research and find deals, do you want to manage your str's directly or find ways of making enough money to acquire them and just manage the managers, etc).

It sounds like you have some clear "general" idea of what you want (i.e. to replace your W2 income). And it sounds like you have honed in on a part of the business you are interested in (i.e. str). But, you also mentioned the possibility of multi-family. So, maybe you have a little more contemplation to entertain other parts of the business you may want to focus on.

But, once you have your monthly income goal, than you can zoom-out and back into it. So, if you decided to start with str's, you would choose some areas you may want to work in and do research, finding out the #'s (property prices, potential income, estimate how long it may take to acquire a property and get it to stabile income, etc), and decide how many of those you would need to get to the monthly income you want. That would give you the framework for the plan (i.e. If I acquire 1 str in this location, for around $300k, I should be able to get it to a stable net income of $2,500/mth in about 6 months, utilizing a reasonable 10% unleveraged net return, etc). Then, if you wanted $10k/mth, you would just need to write the plan of how to acquire 4 str's that would perform at least that well. 

And, if you are netting $400k after taxes form your personal house sale, you would work out the #'s of how much of that it would take to acquire your new primary res (personal home), and how much left over to invest in the str's, including reserves, etc. Then you just choose how to go about acquiring those properties, and adjust as necessary.

I am guessing you probably already thought of a lot of this, but hopefully, that was somewhat helpful. But, I am wondering if you need to hone in a little more on which aspects of RE investing you want to focus on. There's a lot of it, and I have seen people get overwhelmed and try and do too much of what they realized they didn't want to do in the first place. (mind-twister)

Other things that make you go Hmmm...

1) Understand the tax ramifications of selling your personal house. $250k/$500k exclusion, etc. If you are single, sounds like you will have some gain, if not single, than it may all be non-taxable. This may not work with your plans, but you do have the option of moving out and renting it for a year and then selling it and 1031 into investment property/ies.

2) Not sure if you are able to work remotely when you move, if not, be clear on how you will finance your deals (cash, loans, etc). If you are able to get good loans with your W2, maybe you want to acquire some deals now, when you can better qualify, before you release the W2 income.

---- Curious

Where in TX are you contemplating investing?

I have properties in 3 different TX markets and am just curious as to where you are thinking and why?

Ok, that's enough rambling... :)

Well, here are some thoughts, even though there is some missing info in the original post.

cash out investor loan @ 4.5% does not sound great, but that depends on some more specifics (LTV, FICO, loan amount, etc).

I just checked an online lender I know of and it looks like they will do a 30 year, 75% LTV, cash out investment (non-owner occupied) conforming loan, for Borrower with a 720+ FICO, @ 3.75% with total estimated fees of $1,919. You can get down to 3.5% with total estimated fees of $3,629. And your rate could be even .125% better with a great FICO of 740+ (3.375% @ $3,294 estimated fees) or better with higher fees. This is as of today.

So, #1 - your deal doesn't sound terrible, but not great either. But, again, that depends on your FICO, loan amount, LTV, etc.

#2) One of the only reasons to do a 15 year loan, is if you just don't want the hassle of paying extra principal on your own - kind of a forced savings account, where you are required to put a certain amount in every month. In other words, you can often get the same or similar "effective" interest rate on a 30 year loan, by just paying additional toward principal every month. But, the 30 year schedule preserves the option to pay the lower 30 year monthly payment, if you want the increased cashflow. I am sure you can find mortgage calculators online to figure that stuff out. 

#3) For most loans, you have the option of paying a minimum chunk down and then having the loan "recast" over the remaining term, which will lower your monthly payment. That way, if you decided having the cash out is not doing you any good, and just costing you money, you can just pay the principal down and essentially get back to the original loan amount. But, I think the minimum pay down may be $25k, but you have to check with the specific lender.

#4) 3.5%-4% money is still pretty cheap  and I think there should be opportunities to put it to use to make more, but $17k is not a whole lot to put to use on additional properties, in most markets.

#5) There are lenders that will do HELOCs on rental properties. That might be a way you can have the potential to easily and quickly get the cash out if needed, without having to pay for it to sit on the sidelines.