Author Topic: Need advice on financing 2nd property  (Read 1266 times)

Coloradostache

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Need advice on financing 2nd property
« on: February 23, 2016, 02:13:01 PM »
I currently own my own place and live with my girlfriend who pays rent.  We are looking at buying a place within the next year and I'm trying to figure out the best way to finance it.  Here' is some background info:

Current house:  $700K market value, $275K mortgage at 2.875% 11 years remaining on 15 year term
New house:  Likely in the $400-500K range, split with girlfriend so my half would be $200-250K. 

Was thinking of refinancing my current house to a 30 year and then renting it out for around $3500/mth.  The cash flow from the rental would cover my share of mortgage on the new place leaving me without any payments.    I would like to keep the current property as a rental.  I hate the idea of refinancing at likely a full percent more, but I think it makes sense to  make cashflow from the rental.  Any suggestions?

arebelspy

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Re: Need advice on financing 2nd property
« Reply #1 on: February 23, 2016, 09:05:19 PM »
That rent to price ratio is pretty meh, I'd personally be selling to put the equity to better use, unless you're expecting massive (above inflation) appreciation for a particular reason.

That aside, if you are keeping, the mortgage to value is quite low, so I'd just look at doing a HELOC to keep that low rate.  Then again, I'd be looking for a 30-year, not 15, at a rate that low.

But based on you liking the 15-year, and presumably keeping this place, I'd go with a HELOC over a refi.

As another aside, splitting ownership, especially with someone you aren't married to, can be tricky.  Have you considered letting her buy, and you just paying rent?  You very likely come out ahead, monetarily, due to the opportunity cost on the money (even paying rent, rather than building equity), based on those price-to-rent ratios in your area.
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Coloradostache

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Re: Need advice on financing 2nd property
« Reply #2 on: February 24, 2016, 10:03:07 AM »
Thanks for the reply.  Ya, rent ratio isn't great, I agree.  I suspect I will end up renting it for a year or two and then selling to invest in something else.  I'm in Colorado, and it is in a desirable area that is appreciating (~+150K in the last 4 years).  I am reluctant to sell as it is a unique property that I could see moving back to eventually. 

I refinanced to a 15 year about 3 years ago when my intent was to pay it off quickly.  Now I see the benefits of not doing that, so I will likely refinance to a 30.  Just seems wrong to refinance for a higher rate, but I have to remember it will create cash flow. 

Any suggestions on splitting ownership?  She doesn't have the income to finance it on her own so I will either have to front the 20% downpayment or split the mortgage with her.  My hope was to let her get a mortgage for half and I would fund my half through a Heloc on the current property.