Looking for Help/Suggestions on Equity Take Out.

[KMcFarlane]

Hello All,


I`m hoping some experts might be able to provide a helpful solution.



The situation:

I currently own my condo and it is valued at $290,000 with a remaining balance of $224,000 on my first mortgage amoritized over 25yrs at 5.15%. I have been working with a REIN member and we would like to pull the equity out of this property to purchase a new personal residence while still holding onto the condo. The condo would then become a rental property split 50/50 between myself and the REIN member, who would furnish and manage the property, I would then relocate to my new personal residence.

The problem we are currently having is how do we access the equity in the property?

I have been discussing this over the past few days with my first mortgage lender. They suggested re-financing up to 90% LTV of $290,000. New mortgage would be $261,000 with a blended rate of around 5.5% and allow me to access about $37,000. However, this is where the problems begin.

1 – If I went this route I can`t extend my amortiazation up to 40yrs, which is what we require to allow us to cash flow on the property. Apparently if I want to extend or change the amortiazation period I must repay the CMHC fees about $6400.00.

l-->2 – My mortgage lender is also telling me if my intent is to use this as a rental property, they can only use 50% of the rental income for their calculations. Also since I will be purchasing a new personal residence they are taking this into account and noting they will not be able to approve the re-finance based on my TDS ratios. I`m with RBC.

3 – I then thought what If I went with a lender who will take into account the full rent value as part of the income calculations, and re-finance through them. If I do this I will then have to pay a prepayment charge to RBC for closing my mortgage before my term is up, a very significant cost approx $8000.00

Basically, these options either don`t allow me to qualify or include fees that eat up almost 50% of what I would be able to pull out of the property. I believe this is not the best way to proceed.

However, I`m sure there must be a way to make this work. Are there any experts out there that can recommend anything? Keeping costs to a minimum and allow me the maximum equity available.

-Could I sell the property to myself and my business partner as a JV, to access the equity, even if I`m the original owner?

Are there any other options?

Thanks in advance.
Kyle

 

[Thomas Beyer]

re-mortgaging is a good idea in a rising market and with cash-flow !!

Q1: is the market rising .. or at the very least flat ?
Q2: will it cash flow with the new mortgage, after all costs: mortgage, management fees, upkeep, taxes, condo fees, the occasional vacancies ?

why not sell it .. then buy s.th. else ?

negative cash-flow will eat you like an alligator ..

 

[invst4profit]

Before you proceed further with this refinance have you looked at your numbers.

$261,000 morgage at 5.5% 40yr = $1346/m debt repayment.
rent eg: $1500/m (I have no idea what rent you could really get)
expences= $750/m (standard 50% of rent)
monthly profit after debt repayment = -$596/ month

$596 per month loss is fairly steep if you also have to make additional morgage payments on the new home.

 

[PeterKinchMortgageTeam]

QUOTE (KMcFarlane @ Jan 22 2008, 01:36 PM)
Hello All,



[/size]



I'm hoping some experts might be able to provide a helpful solution.







The situation:



I currently own my condo and it is valued at $290,000 with a remaining balance of $224,000 on my first mortgage amoritized over 25yrs at 5.15%. I have been working with a REIN member and we would like to pull the equity out of this property to purchase a new personal residence while still holding onto the condo. The condo would then become a rental property split 50/50 between myself and the REIN member, who would furnish and manage the property, I would then relocate to my new personal residence.



The problem we are currently having is how do we access the equity in the property?



I have been discussing this over the past few days with my first mortgage lender. They suggested re-financing up to 90% LTV of $290,000. New mortgage would be $261,000 with a blended rate of around 5.5% and allow me to access about $37,000. However, this is where the problems begin.



1 ` If I went this route I can't extend my amortiazation up to 40yrs, which is what we require to allow us to cash flow on the property. Apparently if I want to extend or change the amortiazation period I must repay the CMHC fees about $6400.00.



2 ` My mortgage lender is also telling me if my intent is to use this as a rental property, they can only use 50% of the rental income for their calculations. Also since I will be purchasing a new personal residence they are taking this into account and noting they will not be able to approve the re-finance based on my TDS ratios. I'm with RBC.



3 ` I then thought what If I went with a lender who will take into account the full rent value as part of the income calculations, and re-finance through them. If I do this I will then have to pay a prepayment charge to RBC for closing my mortgage before my term is up, a very significant cost approx $8000.00



Basically, these options either don't allow me to qualify or include fees that eat up almost 50% of what I would be able to pull out of the property. I believe this is not the best way to proceed.



However, I'm sure there must be a way to make this work. Are there any experts out there that can recommend anything? Keeping costs to a minimum and allow me the maximum equity available.



-Could I sell the property to myself and my business partner as a JV, to access the equity, even if I'm the original owner?



Are there any other options?



Thanks in advance.

Kyle




If you refinance the rental condo up to 90% you will have to pay high ratio fees on a rental. Since the high ratio premiums under the rental program are higher than they are for owner occupied properties, if you can qualify why not just purchase your new principal residence with 5% down, or even 0% down. That way you'll only be paying a high ratio premium on one of them and you'll be leaving your first mortgage intact. If you are not putting high ratio insurance on it, you should be able to extend your amoritization to 40 years without any premiums or penalties.



If you do decide to go the high ratio route and refinance your condo up to 90%, then high ratio guidelines apply and the bank should be applying an offset to help you qualify as opposed to a 50% rental addback as you mentioned. If you are close with the 50% addback, you should have no trouble qualifying using the addback. I would suggest you try working with someone who is familiar with revenue property financing and those guidelines, it sounds like your banker may not be.



Hope that helps,

 

[KMcFarlane]

QUOTE (invst4profit @ Jan 22 2008, 01:28 PM)
Before you proceed further with this refinance have you looked at your numbers.



$261,000 morgage at 5.5% 40yr = $1346/m debt repayment.

rent eg: $1500/m (I have no idea what rent you could really get)

expences= $750/m (standard 50% of rent)

monthly profit after debt repayment = -$596/ month



$596 per month loss is fairly steep if you also have to make additional morgage payments on the new home.




Rent would be about 2000-2100/mth we will be furnishing and renting to executive clients.

Expenses run about $475 taking into account 2% Vacancy, Insurance, taxes condo fees and electricity.

We will be managing the property. I live there now so I know exactly how the numbers work.



My concern is whether or not refinancing is the best option availible to get at the equity. Considering all the fees that will eat up my equity upon refinancing.



I would like to hold onto the property as it is in an area that meets all REIN guidlines and will see some good appreciation. Any suggestions regarding how to pull the equity out and minimize expenses?

 

[Thomas Beyer]

QUOTE (KMcFarlane @ Jan 22 2008, 01:57 PM)
Rent would be about 2000-2100/mth we will be furnishing and renting to executive clients.

Expenses run about $475 taking into account 2% Vacancy, Insurance, taxes condo fees and electricity...






furnished suites will be more difficult to rent .. 2% vacancy is too low !



HIGH RISK .. proceed with caution !







consider selling .. then buy s.th. else !

 

[KMcFarlane]

Maybe selling is the best option.

Selling might allow me to retrieve the maximum equity availible minus selling costs.
I could then get into a new place and possibly have some capital left to re-invest.

Something to consider.

Thanks for your comments.

 

[Thomas Beyer]

QUOTE (KMcFarlane @ Jan 22 2008, 02:48 PM) Maybe selling is the best option.

Selling might allow me to retrieve the maximum equity availible minus selling costs.
I could then get into a new place and possibly have some capital left to re-invest.

Something to consider.

Thanks for your comments.

exactly ..

our toughest decision are always: when or if to sell !! we own over 16 buildings right now .. and in most cases the value today is lower than the value will be tomorrow .. but sometimes the cash can be better re-deployed elsewhere .. but not always (after realtor fees, taxes, legal ..) .. so the question: to sell or to hold and possibly re-finance is always our toughest one .. even after 10 years in the cash-flow real estate game !

so, as I said earlier, IF you can continue to hold (after re-fi) with positive cash-flow in a rising market AND with little or no work/anxiety .. then hold .. otherwise consider selling !

 

[DennisEpp]

I read your dilema, and was about to give you a phone number for Peter Kinch, but I see he has replied already, he is versed in this type of lending, bend his ear on this. Advise is free..

dennis

 

[invst4profit]

Your expences may be $475/m with you living there now but they will creep up to
50% of your rental income over time. Two or three months without a tennant will
get you there quickly.
At the executive level you will be required to do regular update and rehab on an
ongoing basis and don`t forget special assesments in condos do happen.
Rental of a single high end unit can be risky.

 

[pookie]

What about taking out a Line of Credit for 75% of the equity and using your condo as security (usually at prime) then use this money to put down on the next property, and finance that with a conventional mortgage.
Perhaps looking outside of RBC for you LoC (HSBC?) with someone more aggressive to lend...then your payments are with the mortgage on the new property + interest only on the LoC.