I am interested in adding an additional Rental property to the portfolio. This time though, I am wanting to to make a cash-only deal. I figured this would be as simple as refinancing my victorian house 1 (since it has the lowest balance and highest interest rate) and pulling cash out to throw down on the new property.
Here is the problem, TEXAS. When it comes down to it, the state of Texas is looking out for its homeowners to keep them from going over there heads in mortgage debt. With this, I found out I cannot take a second or a home equity line of credit on an investment property. I supposedly will get the 'evil eye' when I acquire a 4th mortgage too. So at this point my hands are tied.
Before I found this out I looked into getting a mortgage for the property. I learned that with Obama's new 'predatory lending' laws, any house I try to purchase under $60,000 will be considered a predatory loan because the banks $4,000 origination fees will be above the 5% loan amount threshold....
The local housing market here has homes dropping in price for the short term, making entry points more desirable for the long term. I have a few options here: One would be to continue saving away and waiting until I have the funds readily available. The second option would be to open up an unsecured line of credit. The third option would be to wait and continue driving down my various debts.
I'm thinking too that a 4th option would be to diversify my real estate portfolio by getting a rental property in a different town or even state... but I do like having my properties near by in case of emergency repairs etc.
What are your thoughts? What would you do in my situation? Imagine having 15k cash onhand, one investment mortgage of ~30k, and about 15k in the stock market.
Disclaimer: I am not a financial planner, advisor, or accountant. The financial actions mentioned were only suited for my own risk tolerance, strategy, and ideas. Copying another's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.
What about a joint venture with some one. If you find the deal, they can make the down payment and qualify for the mortage. When the property eventually gets sold, the profits are split 50-50.
ReplyDeleteAnother option is taken on assumable mortgage or vendor take back setup.
The joint venture is an interesting option, pretty tough though finding someone who would be able to handle this.
ReplyDeleteThe assumable is another good idea, im just trying to prevent adding more debt to my already massive debt pile!
I'd pay off the $30k mortgage because it gives your more options and choices with your portfolio. Whats the interest rate on that mortgage?
ReplyDelete1: Free up some cash flow. It will speed up your future portfolio income.
2: You are at 83% passive income covering expenses. Will this put you at 100%?
3: It frees up a mortgage for you to buy your 4th house. While that will setback #1 and #2 above, it grows your overall income.
Thanks for the suggestion, the interest rate is a 7 1/8% for 30 years. If I purged my stock accounts and dumped my cash, my passive income from all units rented would cover 106% of my monthly expenses. The reason for such a big jump is I automatically tack on 200$ extra on the payment each month to drive the principle down.
DeleteThe way I was originally looking at it, was adding a 4th unit bringing in 675 (after fees), but after factoring in taxes and insurance my passive activities would only cover 96% of my expenses.
After really looking at it... paying down the mortgage would make more financial sense. I could be FI (assuming all rent always paid but doubtful) and clean up my balance sheet The good news is though that either road I take I can still generate positive cashflow if one of the units is ever un-occupied. As of right now, when one is vacant I'm automatically down at least $300 for the month.
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Thanks for the comment Atik, although the journey to financial independence is long, it will be rewarding.
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ReplyDeleteReal estate investment will need more capital than other investments. This is also a long term investment which is affected by the inflation rates and other factors. With this information I can say that you really have to invest now on a property that wait for the said property to increase it's value.
ReplyDeleteThe sooner we invest the better.
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