Hey there! Remember last time we talked about my brother’s real estate journey and how he made a whopping $72,000 in profit from his 4-unit property in just 4 years? Well, he’s back with another big decision to make, and he called me, his big sister and real estate expert, to help him out. After having a lengthy conversation and weighing out all the options, we concluded that he needs more space, but not necessarily a single family home just yet. So, I suggested a cash-out refinance since interest rates had settled down around 5.5%. His 4-unit property is currently valued at $281,000, and he owes about $191,000. I advised him to take out $30,000 cash from the house for a down payment on another property.
We made sure to be cautious and advised him to leave 25% equity in the property and finance the rest, while also reducing the mortgage to a 15-year term. He had enough equity to buy down his rate, which was fantastic. So let’s say he refinances at 5% interest for 15 years, and his new monthly payment will be $1,998. He shaved off 11 years from his mortgage and will own the property free and clear when he turns 37. And here’s the cool part - he’s also collecting around $3,200 a month in rent, which covers his costs and gives him an extra $1,000 to pocket. Now, the question is, what should he do with the $30,000 he got from the refinance?
We found a fantastic large 2-unit property where he can live for the next couple of years and have enough space for himself and whoever he adds to his life.
Although the new property came with a hefty price tag of $400,000, it’s well-maintained, has a new roof, and has been completely updated. The maintenance costs will be relatively low, and since we are house-hacking and this new double will be his primary residence, he can use the FHA mortgage product again, which only requires 3.5% down payment.
Luckily, he has enough money to do this. While FHA only allows you to have one FHA loan at a time, we were able to use this product again because we refinanced his original loan.
The mortgage payment on his next house is high, around $3,063 (including taxes and insurance), but it’s a beautiful house! He has a really nice apartment to rent out, which will demand top dollar. He’s going to collect around $1,600/month in rent for one of the apartments and live in the other. And let’s not forget - he has an extra $1,000 from his 4-unit property to help cover his costs. In other words, he’ll only be spending $463/month on housing expenses. Pretty great, huh?
And we have only just begun!