Today we’re asking the question: Should we keep it, sell it, or refinance it?
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: The way we are built as we think about what we need today first, but I would like to suggest today our conversation’s going to be about whether you’re going to keep it, sell it, or refinance the property you own currently. Is it the right thing, not only for today, but for the nearby future?
Bob Nelson: Well, it’s an interesting thing. Evaluate the amount of equity that you have in your property and you start with what’s a reasonable value, what might it sell for, and not wild expectations, what might it sell for? What might it be appraised for in today’s market? Deduct the amount of debt that you owe against that property, that defines your equity position.
Marcia Edwards: And there’s so many considerations, but equity position is important to understand your stability, your staying power, where you’re at today. And can you leave some of that in play or should you move some of it and the right thing to do would be reinvest it so you have a return elsewhere?
Bob Nelson: Well, it’s interesting because if you refinance all of the equity out of a property, you’re going to have such a negative cashflow that if anything starts to go wrong, you are in trouble from the beginning. And as you turn around to sell the property, your various closing costs are going to reduce the amount of that equity. And you may be digging in your pocket just to get rid of a property. So be very careful of trying to suck all of the equity out of a property.
Yes, there’s such a thing as dead equity. Once I … as an example, what if I owned a $300,000 house and I owed $100,000 against it? I’ve got a $200,000 equity, but that equity is pretty much dead because the size of the mortgage payment is about the same size as it would be if I were to refinance the thing, et cetera. And I got to be very careful not to over commit into a position where I have no flexibility to move one way or the other.
Be cautious, but at the same time, it’s a great idea to harvest some portion of that $200,000, move it to another asset, or buy another asset that allows the equity to grow. Now you’ve got two things that are going up in equity amount each day.
Marcia Edwards: All right. Another consideration is refinancing. You’ve got a market here where if you refinance, do you pull equity out or not? You’ve got to take a look at the whole picture and make sure you have the endurance that you suggested, Bob, but also you’ve got to look at how much longer you’re going to have the house. If it’s two years or less, refinancing may not be the best thing. Let us know if you need a lender of choice to have this conversation with.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.