I bought a 2br 1.5 bath townhouse 2.5 years ago with 20% down. I will be living there until around June when I would like to move out and turn this into a investment property. I would like to take the equity in the townhouse with me so that I can use it when I purchase a house in June. The mortage is on a 3yr ARM which is set to expire in June.
I purchased the home for $93,500 with $18700 down. The current amount on the loan is 71,934 and when June rolls around I suspect there to be around $69,308 on the loan.
What is my best course of action? Should I do a “cash-out” refinance to get the equity out of the home plus refinance with a fixed rate (which is almost certainly going to be higher, I am paying 5% now with the ARM and the 30yr is around 6% right now in my area). Would I refinance to the purchased price or does it need to be appraised?
Should I look into doing a home equity loan?
Should I do neither and just keep the equity in the home and rent another place for a year or two?
Not sure what method here would be best, I plan on renting this out as a furnished corporate unit and paying off some credit card debt along with downpayment on another home with this money.
I live in the Midwest and know that my home has not depreciated and my equity has not “gone up in smoke”. It would say that it has remained flat and the home would be worth about the same as what I paid for it originally, right around 93500.
Does anyone else have any real ideas for me and my situation?
First: Call a realtor and ask them to do a CMA on your property that way you will know how much it would sell for. With that amount calculate how much you will get for refinancing. That will tell you if you have enough for everything you need. Now if you move to rent someplace else it would have to be worth it, the rent in the property you own will have to cover the PITI and maintenance and your new rent to make it a good deal. If I were you I’ll stay away from HELOCs because it is the same as having a credit card but you have your house as collateral. Helocs are only good for very short term.
Its going to be a furnished unit used for short term rentals. Rough estimates tell me I should be able to cashing flow $400-$500 a monet depending on what the refinanced loan monthly payment will be. In my market these types of rentals will go for $1200-$1400. I already have demand and contacts for this so that is not an issue. Right now its just a matter of finding the best way to get currenty equity out of house and maintain the lowest payment possible.
I think I have a pretty good idea on what the property is worth, or what it would sell for. What exactly is a “CMA”? I know a few realtors I could call, I would just like to know what I am ask for before I do it! Also, is this information that I could find myself?
I have not decided if I am going to buy a new property right away with this equity or sit on it for a few years and rent elsewhere. As stated above I am hoping that the rental will cashflow $400-500 a month. What is PITI? I have not heard of this term before.
I plan to stay away from HELOCS too, I cant find any possible way a home equity loan would work in my situation.
CMA - Comparative Market Analysis. A Realtor can take care of this for you. They will see what you have and compare it to other things on the market and also places that have recently sold so you’ll have an idea of what you’re home is truly worth in the current market. I have found a couple local Realtors’ websites that have prices that homes actually sold for, but most won’t post this information on their websites.
PITI - Principal, Interest, Taxes, Insurance - Shorthand term for your basic costs for a property. This does not include all the other expenses like maintenance, repairs, property management, advertising, vacancy, utilities, etc.
Assuming the numbers are good enough, I’d contact some of the local banks and see if they are doing loans. A lot of the big mortgage agencies and national banks are frozen, but in many places the small local banks are still doing business.
I don’t see you taking out any money on this one. Lets say you house is worth 95k. 80% of 95k is 76k. You owe 72k, you only have 4k to draw a HELOC out of. Not much. Best bet would be to refinance at a fixed rate to avoid any surprises later on. You aren’t cashing out much, do you desperately need it.
Besides, if you rent this place out, whats your long term plan with your next house? Where are you gonna live? Getting financing on that next house will be a problem because your initial house, which you plan to rent, isn’t going to help you much because banks don’t use all 100% of your rents as income.
You’re problem and many other investors as well, is that banks aren’t really loaning on investments properties. Its easier on this one cause its being treated as a primary residence.