As readers may know, I’ve been trying to get money out of my rentals (unsuccessfully) for a little over a year now. I have quite a bit of equity built up into my Bay Area rentals, and have wanted to tap into it for the longest time…
One thing I failed to account for when I was loading up on rental properties is just how much more difficult I was making things for myself by taking on more loans. Getting a cash out refi using a big name bank is impossible once you surpass 4 loans (Fannie Mae guidelines)…
So, I’ve had to shop around a bit, talking to smaller banks and portfolio lenders. Due to my work schedule being as hectic as it is these days, I really just don’t have much free time during the day to make random phone calls. However, since we are now entering Thanksgiving holiday, things have slowed down a little bit and I finally found some free time this week to address this.
And I may have just found the perfect lender! They are willing to let me go as high as 75% loan-to-value (LTV), accept the fact that I’m carrying more than four mortgages, and aren’t requiring me to have to buy any points! Further, closing costs total only about $3,000 (accounting for everything), and I can get $1,200 back at closing.
After some debate, I decided to go ahead and start the process for Rental Property #2. Here are the details:
Purchase Price: $290,000
Projected Appraisal: $450,000
New Loan at 75% LTV: $337,500 at 4.375%; 30-year fixed
Outstanding Debt: $225,000
Cash Out: $112,500
After closing costs, I should be left with $110,700 to invest with.
My mortgage payment for Rental Property #2 will increase from $1,158.34 to $1,685.09 each month. The interest rate is the same as before — 30-year fixed at 4.375%.
So, if the refinance goes through, my cash flow will be reduced by $526.75 in the immediate term. With over $100,000 to invest with, I will need to figure out a way to deploy it to either:
A) Increase cash flow above $526.75/month.
B) Swing for the fences on future appreciation.
In a perfect world, I would be able to find a deal that can give me both cash flow today and appreciation tomorrow. Unfortunately, real estate prices keep on going up, so good deals have become really difficult to locate.
Readers, what would you do if you found yourself with $100,000 to invest with?
My initial thoughts are to look for a local Bay Area property that has great potential for short-term appreciation. If I can locate such a deal, I may elect to go with another 7/1 ARM to secure a lower interest rate. Then, look to flip it in 1-2 years… Of course, the markets may not cooperate, so of course I will need to find a property that is also suitable for long-term buy and hold.
Things are getting interesting again! 😉