Why Keeping a 2.75% Home and Upgrading Still Wins

Hey everyone, I'm fired up about a client plan I put together - it's a perfect example of why people shouldn't let higher rates scare them off from upgrading. Too many folks cling to their low-rate homes, missing the profits staring them in the face. Here's why my client's move - keeping their $850,000 home at 2.75% as an investment and buying a $1,050,000 home with 10% down - makes total sense, even if they're nervous about holding onto both.

Their Story: Outgrowing a Golden Rate

My client's got an $850,000 home with a $457,500 loan at 2.75% - just $2,083/month P&I, 25.5 years left. Equity's at $392,500, and it rents for $4,000/month today. They've outgrown it - family's bigger, space is tight - but that 2.75% rate feels like a lifeline in a 6.75% world. Selling feels like throwing away a winning lottery ticket. They're nervous about managing two properties, but here's why they shouldn't be - and why your clients shouldn't either.

The Strategy: Keep, Rent, Upgrade

• Keep the $850,000 Home as a Rental: At $4,000/month rent, they net $1,916 after the $2,083 payment. With 4% appreciation and 3% rent increases, it's worth $1.25M by 2035 (equity $899K) and $2.22M by 2050 when it's paid off, with rent hitting $8,370/month.
• Buy the $1,050,000 Home: 10% down ($105K), $945K loan starts at 6.75% ($7,766/month with taxes, insurance, PMI). Rates drop over time (5.75% by 2027, 4.75% by 2030, 3.75% by 2035), cutting payments to $5,859/month. By 2055, it's paid off, worth $3.32M.
• Cash Flow Now: Rental profit ($1,916) offsets the new payment ($7,766 – $1,916 = $5,850 out of pocket initially), softening the jump from $2,083.

Why It's a No-Brainer

1. Preserves the 2.75% Gem: Selling means a $945K loan at 6.75% ($6,130 P&I vs. $2,083) - a $4,000/month hit. Keeping it as a rental locks in that rate, earning $23K/year now, $100K/year by 2050.
2. Profit Outweighs Rate Fear: The rental nets positive cash flow Day 1, and both homes build $6M in equity by 2055. Higher rates on the new loan fade as refi opportunities cut costs - $1,900/month savings by 2035.
3. Nervousness Beaten: Two properties = two safety nets. Need cash? Equity's there ($392K now, $1.6M by 2045 in the rental alone). Worst case, sell later with huge gains. They're not stretched - they're stacked.
4. Upsizing Without Sacrificing: They get the bigger home they need, keep their financial edge, and turn a "what if" into a wealth engine.

I love sharing this stuff when it crosses my desk! It frustrates me that so many people shy away from higher rates and miss the profits they could make with a simple move to a new place. Here's a letter I sent to a client the other night:

Dear Elon, (Just trying to be controversial with the name! LOL)

It was a pleasure speaking with you about keeping your $850,000 property as an investment and moving up to a new $1,050,000 home with a 10% down payment. Below, I've outlined how your current property could perform over 25 years, plus a 30-year equity projection for both properties, assuming rate drops on the new home: 24 months at 6.75%, 36 months at 5.75%, 60 months at 4.75%, and 20 years at 3.75%. Rates fluctuate daily, so these figures may shift before we lock in your initial loan.

Current Property - You will hold as an Investment - $850,000

• Current Loan: $457,500 owed, $2,083.66 P&I, 25.5 years remaining  / 2.75% rate
• Equity: ~$392,500 (at $850K value)
• Monthly Principal Paydown: ~$1,000/month (Year 1 average; increases over time)

Projected Growth & Rental Income (4% Appreciation, 3% Rent Increase)

• Notes: Paid off by 2050 (25.5 years). Equity in 2055 (30 years): $2,680,597 (5 more years at 4%).

New Home Purchase - $1,050,000

• Purchase Price: $1,050,000
• Down Payment: $105,000 (10%) - I could work a scenario where you get a second on the current house, but I didn't do that today! You can also do with 5% down!
• Initial Loan: $945,000, 30 years total
• Rate Schedule: 6.75% (24 months), 5.75% (36 months), 4.75% (60 months), 3.75% (240 months)
• Taxes: 1.25% annually ($1,093.75/month)
• Insurance: 0.45% annually ($393.75/month)
• PMI: 0.19% until 20% equity (~5 years, $149/month)

Payment & Equity Projection (4% Appreciation)

Payment Details:

• 2025 - 2027 (6.75%): $6,130 P&I + $1,093.75 taxes + $393.75 ins + $149 PMI = $7,766.50
• 2027 - 2030 (5.75%): $5,418 P&I + same taxes/ins + PMI = $7,027.42
• 2030 - 2035 (4.75%): $4,698 P&I + same taxes/ins + PMI (drops ~2030) = $6,307.42, then $5,859.75
• 2035 - 2055 (3.75%): $4,376 P&I + same taxes/ins = $5,859.75 until paid off

Principal Paydown:

• Year 1: ~$750/month
• By 2035: ~$1,200/month
• By 2050: ~$2,000/month

Equity After 30 Years (2055):

• Current Property: $2,680,597 (paid off in 2050, 5 more years at 4%)
• New Home: $3,320,871 (paid off by 2055)
• Total Equity: $6,001,468 - over $6M combined!

Key Takeaways:

• Investment Property: Paid off by 2050, worth $2.68M by 2055, with rent at $8,370/month and growing.
• New Home: Rate drops cut payments from $7,766 to $5,859 by 2035, building $3.32M equity by 2055.

Partner With Me

You find the $1M+ homes; I'll run the numbers. This client's going from a $2,083 payment to living larger with $6M in future equity - nerves and all. Let's show your clients how to ditch the rate phobia and cash in on the upgrade they deserve. Call me!

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

I mentioned yesterday that last week, we were at our best levels since October, and today, we are at our worst levels since January. Today is no different!  The interest rate fluctuations are all due to the uncertainty of the markets, and we have massive volatility in the stock, bond, and mortgage-backed securities markets! Rates will stabilize someday, but I don’t know when that day will be!

• We offer 12-day escrows for pre-approved buyers - Conventional/FHA/Jumbo/Bridge loans.
• We provide loans in all 50 states, so call me with anything you need.
• Government loans (FHA/VA/USDA) are in the 6’s.
• Conventional loans up to $806,500 are in the 6s.
• High Balance Loans from $806,501 to $1,209,750 are also in the 6’s and 7’s.
• Jumbo loans above $1,209,750 are in the 6’s and 7’s.
• Bank statement loans are available with 10% down again, with larger down payments in the 6’s ++.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000.
• Private Money lenders offer Hard Money Loans with 35% down.
• No Ratio Loans require 30% down.
• DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
• Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
• 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:** – Nothing new!

**Bad News for Condos***

Annadale Condos– Agoura CA – Roof repairs are needed, but there is a lack of reserves and insurance issues!

The full state of California naughty list has been added to MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Cell: 661-714-6258

TEXT: 661-714-6258

📞 Office: 661-260-2970 ext. 2222

📞 Direct Line: 661-291-2222

📧 Email: Mike@AugustaFinancial.com

Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow!