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Refinance to Remove a Person
Most people are familiar with the various reasons a homeowner refinances their home which generally result in two major benefits: saving interest and building equity.
There is however another reason to refinance which may not be as common which is to remove a person from the loan. In the case of a divorce, when one party wants to keep the home and the other party wants their equity out of the home, it is possible for the remaining party to refinance the home. If the equity is sufficient to justify it and the remaining owner can qualify for the new loan, the refinance can provide the proceeds to buy out the other spouse.
Refinancing to remove a person from the loan could also involve a situation where two or more heirs jointly own a property and have differing opinions on when to sell. The same situation could apply to a rental property with multiple owners and the refinance would provide a way to buy out a partner.
Sometimes, it’s not about taking cash out of the home to buy out the other party. If a person’s name is on the mortgage, they’re responsible if it goes to default. One party may be willing to deed the home to the other party but it doesn’t necessarily relieve them of the liability of the mortgage they originated.
Many times, once a person has made their mind to move on, they’ll take the fastest and easiest way out. Removing a person from the deed or a mortgage is a reason to consider obtaining legal advice to protect your interests. Refinance Analysis calculator.
Reasons to Refinance
1. Lower the rate 2. Shorten the term 3. Take cash out of the equity 4. Combine loans 5. Remove a person from a loan
The Rules
The profit potential in single family homes for investment has been a consistently good long-term investment. They offer investors the opportunity of high loan-to-value mortgages at fixed interest rates for 30 years on appreciating assets, tax advantages and reasonable control that other investments don’t offer.
Last year, Warren Buffett said that if he had a way of buying a couple hundred thousand single-family homes, he would load up on them. Blackstone group L.P. (BX) has now purchased over 30,000 homes and American Homes 4 Rent (AMH) has more than 19,000 for rental purposes.
Individual investors actually have an advantage over the institutional investor but if they are not familiar with rental real estate, some basic rules could be very helpful.
1. Invest now to get more in the future. Whether it is time, effort or money, the prudent investor is willing to forego immediate gratification for something more at a later date.
2. Real estate is an IDEAL investment. IDEAL is an acronym that stands for income, depreciation, equity build-up, appreciation and leverage.
3. Invest in single family homes in predominantly owner-occupied neighborhoods at or below average price range. This strategy should involve homes that will increase in value, rent well and appeal to an owner-occupant in the future who will pay a higher price than an investor.
4. Location, location, location. The same homes in different areas will not behave the same. You can improve the condition, modify the terms or adjust the price but the location can’t be changed.
5. Understand your strategy – buy and sell, buy and hold or buy, rent and hold. These three distinct strategies involve big differences in acquisition, management and taxation.
6. Know where your profit is coming from before you invest. The four contributors to profit are cash flow, appreciation, amortization and tax savings. They don’t contribute equally or the same in all investments.
7. Profit starts with purchase. Buying the property below market value builds profit into the investment initially.
8. Risk is directly proportionate to the reward involved. An investment that has a high degree of upside also will have considerable downside possible.
9. Avoid functional obsolescence unless you have a plan before you buy. The lack of usefulness or desirability of a home that exists when you buy it will still be there when you sell it. Unless it can be cured, it will affect future profit.
10. Good property + good tenant + good management = great investment. These are three solid components for a successful investment.
11. Problems left unresolved have a tendency to get worse. It is generally cheaper in time or money to fix a problem earlier rather than later.
If you’d like more information about the opportunities in our market, contact me.
