Author Topic: Cash out refinance?  (Read 489 times)

TillyChap

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Cash out refinance?
« on: August 23, 2019, 12:20:24 PM »
I'm pretty new to this world, so please be gentle with me! We've been in our home for almost five years now, and are looking to move a little further out of the city (but only by 10 minutes) into a slightly larger home that would cost less than the current value of our home. We're considering renting our current home instead of selling and have gotten advice to consider a cash-out refinance and rent out our current home. I'd love your honest thoughts on this.

Market Value: $320,000
Original Purchase price: $185,000
Original Mortgage Amount: $150,000 fixed; $27,750 HELOC
Interest Rate: 4.5 fixed; 5.5 HELOC
Mortgage Term: 30
Term remaining: 25
Amount remaining on mortgage: $136,359 fixed; $21,252 HELOC
Gross Rents: $1,800 estimate
Principal and Interest (the P&I of your PITI - should match with the above info): 749.89  fixed; 98.95 interest on HELOC (we pay more to pay down)
Taxes and Insurance (the T&I of your PITI): 283.75
HOA costs:
Deferred maintenance notes: Roof and HVAC will most likely need to be replaced within the next 5 years

The property is 3 blocks from a large university in a neighborhood that has rentals that are always popular with graduate students.

Thank you for any insights.


ecchastang

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Re: Cash out refinance?
« Reply #1 on: August 23, 2019, 01:36:27 PM »
You mention HOA, but don't list a cost.

Currently, your monthly costs listed are roughly 1150.  Add another 180 in vacancy, 180 in management, and at least 180 in maintenance/capex and you are looking at a terrible rental, whereas you can sell and have zero cap gains tax. 

TillyChap

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Re: Cash out refinance?
« Reply #2 on: August 23, 2019, 02:19:47 PM »
Ah, my mistake. No HOA. Thanks for the feedback on the numbers!

Papa bear

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Re: Cash out refinance?
« Reply #3 on: August 23, 2019, 07:09:55 PM »
I would recommend you not renting this out.  See the other “should I rent out my house” threads.

You made a good amount of money on appreciation.  It does not make sense as a rental given the current market value and your estimated rents.  If you sell this house now, you will not have to pay capital gains taxes. If you start renting this out and decide to sell 4 years in the future, you will pay taxes on all the gains plus dealing with depreciation recapture.

Cash out refi for this and 1800/month rent and you will be losing money every month. Plus you have to be a landlord and deal with headaches, etc.




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macmoneysaver

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Re: Cash out refinance?
« Reply #4 on: August 25, 2019, 06:30:37 PM »
If the true market value is $320K, and you sell it (assuming 8% closing costs), you would cash out 296K.  But need to subtract $136K and $21K for the mortgages and you walk away with nearly $140K in cash.  That is not bad.

For rental, since you bought at $185K and get $1800 gross rents, this nearly meets the 1% rule, so it is definitely worth CONSIDERING as a rental.  But you really need to run all the numbers.  Since you did NOT include vacancy, property management, or capex/maintenance, this property is only going to cash flow a couple hundred a month over the long term.  And, it sounds like a good chance HVAC going out could kill several years worth of cash flow.  Compare that with $140K tax free in the pocket, I would take the cash.

If you want a rental, then seek out a property specifically as a rental--you could leverage some of the $140K to buy it.