I have a rental property in Dacula, Ga. The current value, according to a few Web sites, is about $170,000. I’m collecting $1,145 per month in rent.
I owe $88,479.67 at 3.125 percent with about 18 years left on the loan. I was wondering if I should refinance to a 30-year loan and leave 20 percent equity in the property? I could pull out close to $48,000 to invest in another rental property. I currently have $6,000 set aside as a safety account for this property.
My other option is to continue to let this property operate as is and just start using the profit to save for another down payment. My concern is the possibility of rising interest rates and that it might take me another five years or more to save up enough for a down payment.
I am 34. Do you have any suggestions on how to find a group of investors with good practical experience in single-family investing who could help me?
We think you’re doing pretty well on your own, though we have some places you might want to look for help.
Let’s start with your questions about refinancing. While you might be able to do a cash-out refinance on the property, you probably can’t take out as much cash as you think. Lenders want investors to maintain 30 to 35 percent equity in the property. You can talk to lenders in your area and see what their lending requirements are and use that information to make a better decision for yourself.
While you could refinance, and would be maximizing the lowest interest rates of the year, there is another way to maximize your investing strategy.
You didn’t mention in your e-mail whether you own your current residence. Assuming you do, and have owned it for at least a year, you could rent out that property and might qualify to purchase another primary residence in your neighborhood of choice — although lenders may have other lending requirements for you, given the proximity of the homes.
Because it’s easier to finance a primary residence than a rental property, you could purchase that property with as little as a few thousand dollars in cash. FHA loans require a 3.5 percent down payment, but you might find a HUD home (which is an FHA foreclosure) that you can purchase that would require an even smaller outlay. If you buy a HUD home, it’ll likely be a fixer-upper, which will allow you to build in profit as you renovate to meet the neighborhood standard.
If you want to tap the equity in your other property without refinancing, consider a home equity line of credit or a home equity loan that will allow you to borrow more easily against some of the equity without giving up the amazing interest rate you already have. That will allow you to put down a bit more on the next property.
Another strategy is to buy a multi-unit building, live in one of the units and rent out the others. That is another good way to leverage your investment dollars.
As far as mentors go, you need to start by building the team of experts who will help you do these deals over the long run. Finding a great real estate agent, mortgage lender, accountant or tax preparer, professional home inspector, insurance agent and contractor will allow you to quickly assess properties as investments and know that you’re getting the best possible advice for your personal financial situation.
Through these professionals you should be able to meet other successful investors who are a bit further down the pike in terms of their investments. If you cultivate these relationships, it will undoubtedly pay off over the long haul.
As far as Web sites go, we like RealtyJoin.com and BiggerPockets.com. And don’t forget to check out Ilyce’s “Intentional Investor: How to be Wildly Successful in Real Estate” series, available at ThinkGlinkStore.com.
Ilyce R. Glink’s latest book is “Buy, Close, Move In!” If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11 a.m. to 1 p.m. EST.