Sell Or Rent? How Can I Pull Equity & Then Refi & Rent?
I live in a 2 year old 4 bed home that appraises at $160,000. I have lived here 2 years and owe $90,000 + $30,000 on a second that I use for my business. I have approx. $30,000 equity still in the home. The home is fully landscaped, block wall with gates, tile, granite, etc. I currently have a much more expensive home under construction which will be complete in 3 months. I really planned on selling my present home and applying the $30,000 equity from it to my new home. Now I realize that I would like to rent this home out (approx $1100 a month) but need to pull at least 15-20k out if it before I refi or anything. What are my options here??? This would be my first rental and I really don't want to sell the home because property values are increasing quickly in my area and I know I could make money even on a sale of the home in 2 years. THANKS IN ADVANCE. Kyle
-Could I refi as "owner ocupied" and then pull a 100% Home Equity loan to get my 30k out? Too many parimeters for me to judge on my own. THANKS
-another thought I had is to do an interest only loan (if possible on a no doc loan) and then rent and make a small pos. cashflow but assume the property will increase in value. Hope to get some responses soon... THANKS
Some thoughts:
1. If you consider the mortgage payment, property tax, insurance, repairs, advertising, etc will the $1100/mo cover you? Assuming a 30yr, 160k loan at 6% plus $200/mo property tax you are already at $1159/mo
2. You may consider selling via lease with the option to buy (lease-option) or on contract. It depends on your area what markets the best. This way you can demand either a higher selling price or a higher interest rate depending on when you want to make your profits. Since the "buyer" is in there wanting to eventually own the home you typically have much better people in there. A word of caution is that you should never let a tenant/buyer have more than 20% equity in the property or you could be forced to use a formal forclosure process with a right of redemption depending on your state's laws.
3. If you have lived in your home for 2 out of the past 5 years, then you qualify for a $250,000 capital gain exclusion.
4. If you do plan to keep the property (or sell it via lease/option or contract) I would recommend that you refinance immediately and cash out as much as you can. This is a grey area but you should be able to still say that the home will be owner occupied as long as you don't sign anything that says that you will live there for a specific period of time. The rates on this type of loan are much lower.
Once you cash out the existing loans you can use the cash for your business and new home and if needed take out a 2nd on the new home once it is completed
GOOD LUCK
THANKS so much for your help. I am a building contractor and I am so used to building and then selling. I am going to look at the refi option and see what I do with it. THANKS AGAIN,
Kyle
Two things.
Make sure the cash flow works on the future rental. If so you could have a winner.
Second, I am expecting that as a builder you will have some issues with refinancing. Lenders get a little funny with people in the building trade. Hence you might have to shop around to get a good deal on the refinance. When you refinance the second will end up being refinanced also (combined into the new first). Again, just make sure the numbers work.
John
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