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I also have an investment property that's bought with cash and currently rented out.
I am in NJ, have perfect credit (800) and lets assume debt/income ratio is fine for whatever amount I want to finance.
I want to get a cash out of the investment property given the current low rate and use the money to invest in another rental property. What is the best way to go about this?
1) I checked home equity loan, but that seem to be a dead end as the banks will only do it if it's primary residence not investment.
2) Next up is refinance with cash out, but really there is nothing to refinance but getting a new mortgage? Also is it possible to take 75% of appraisal value as cash out (assume of course my debt/income is fine).
3) I also heard if the cash out amount exceeds 100k, you have to pay income tax, is that true?
4) Also heard rental income cannot be used as part of your debt/income ratio calculation UNLESS you have 2 years of rental income history for the same property. I bought the investment property last year, so dont have 2 years of rental income history yet. How true is this?
The current mortgage environment is toxic, we went from the wild west to a bureaucratic nightmare - 1 extreme to the other. For the responsible investors who knows what they are doing, they are lumped together with the subprime zero down crowds, and getting penalized the same way. Making financing legit real estate investment next to impossible.
1. These days most lenders will only do home equity loans or lines of credit (commonly just called "2nd mortgages", even if there isn't a 1st mortgage on the property) on a primary residence or second home, about 4-5 years ago a lot of lenders starting doing investment properties but didn't offer them very long. 2nd mortgage fixed rates (home equity loan) have higher interest rates than 1st mortgages, on a primary residence today you'll find the majority in the 7-9% range. Home equity line's of credit are usually based on the Prime rate + a margin, and right now they have really low rates, but as interest rates increase so will the HELOC rate.
2. You can do cash out on a 1-unit investment property to 75%, 3-4 units to 70%.
3. I haven't heard of that, but I believe on a home equity loan you can only claim the interest deduction on the first $100,000.
4. Even though FHA, Fannie Mae, Freddie Mac and the like all accept rental income with either a 2-year history on the tax return or a rental contract. However lenders have added their own overlay guidelines and many require that you do have a 2-year landlord history in order to use rental income (landlord history demonstrated by owning other rentals is acceptable). That said, there are still some lenders that won't require a 2-year landlord history, and will just accept a signed lease/evidence of security deposit in order to qualify with rental income.
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