I have lots of equity but very little cash. What would you do?

[Drake Taylor]

I bought a primary residence (new build) in 2020 for $255k with $50k down. My residence is now worth about $470k, but I have very little cash in the bank. I figure there has to be a reliable way to use all this equity as a launchpad for my real estate investing journey. My market has been very hot for the last couple years, but is beginning to slow down. I’m looking to buy single family or small multifamily properties for long term rentals. My hope is to accumulate 10+ properties within the next 5 years so I can quit my middle-class W2 job and spend more time with my family. What are the best ways that I can leverage my equity to achieve my investing goals? 

[Taylor Dasch]

I am in the same boat except the equity is not in my primary residence. You have a huge advantage because you can obtain a HELOC to pretty much use the BRRRR method and keep repeating that - and at the end when you get your 10 properties, you can pay the HELOC back. Also, you can use the HELOC to get the ball rolling, fund some flips, pay the bank back and use the $ from the flips to BRRRR your way to 10 properties. This is becoming more difficult in my opinion with the interest rates, because you have to keep in mind that you will need to cash flow well after the refinance.

My goals are very similar to yours also, 10 is my # with 500 cash flow per property in 3 years. Study your market and find a mentor, and then start buying deals. You can do a lot with the equity you have. 

[Robin Simon]

I think the HELOC idea is good advice - assuming your current debt is much lower rate than what you would get today with a cash-out refinance

[Eliott Elias]

Take out a line of credit 

[Jack Swank]

HELOC was my best choice when I had equity in my home. I think it's nice since once in place, your not charged until you actual need the cash.

[Steve Vaughan]

Another vote for a Heloc.  Cheaper and easier to establish, use as needed, flexible. 

As we were tapping out to our end game, we put a fat Heloc on our house for an opportunity fund.  Works great 👍

[Kerry Noble Jr]

Take the equity and buy multifamily in a very affordable market......2 to 4 units......

[Simon Ashbaugh]

I'd recommend a HELOC as well. Definitely will be your most straightforward route. If you don't ant to do that, look into hard money lenders.

[Bob Stevens]

Quote from @Drake Taylor:

I bought a primary residence (new build) in 2020 for $255k with $50k down. My residence is now worth about $470k, but I have very little cash in the bank. I figure there has to be a reliable way to use all this equity as a launchpad for my real estate investing journey. My market has been very hot for the last couple years, but is beginning to slow down. I’m looking to buy single family or small multifamily properties for long term rentals. My hope is to accumulate 10+ properties within the next 5 years so I can quit my middle-class W2 job and spend more time with my family. What are the best ways that I can leverage my equity to achieve my investing goals? 

Simple ,refi/ HELOC, buy rental properties with double digit net caps, refi them, then do again and again
Good Luck 

[Carlos Ptriawan]

Quote from @Drake Taylor:

I bought a primary residence (new build) in 2020 for $255k with $50k down. My residence is now worth about $470k, but I have very little cash in the bank. I figure there has to be a reliable way to use all this equity as a launchpad for my real estate investing journey. My market has been very hot for the last couple years, but is beginning to slow down. I’m looking to buy single family or small multifamily properties for long term rentals. My hope is to accumulate 10+ properties within the next 5 years so I can quit my middle-class W2 job and spend more time with my family. What are the best ways that I can leverage my equity to achieve my investing goals? 

Idaho Falls is one of the metro that used to be under the nationwide price average but starting from Q3 2020 is accelarating extremely rapidly. This is good but also susceptible for possible downturn in the future so you have to be very careful when you take out either HELOC or refi. Best is to use HELOC lender that COULD convert some part of the debt tranches into a fixed loan. If you take 70% LTV you could get 80k. Honestly with 80k you could only get one single cash-flow property in midwest.

10+ properties with 80k is almost impossible.This investing game is actually easy to understand, you need to get the money from the area that already accelerated the highest, to invest into a slow appreciating market (basically move the money from IRR 25% to 10% IRR area), this is for cash-flow investing. But if you're looking for appreciation then staying local is easier, with the risk of downturn.

Whatever the choice you need to be very careful and extremely realistic with the number.

[Galen Ikonomov]

Some people already said it, HELOC is your best option. The reason is, I am assuming your interest rate on your current mortgage is super low, bottom 3s, high 2s and for you to tap into the equity and not touch the rate via refinance would be a HELOC. That is a great product because it is interest only product, therefore your payment would not be that high and also the principal balance is not due in a long period of time.

[Don Spafford]

@Drake Taylor I am in your market. I will be happy to get on a call or meet to discuss some options with you and go through your plans/thoughts. Happy to help in any way I can.

[Erik Estrada]

Quote from @Drake Taylor:

I bought a primary residence (new build) in 2020 for $255k with $50k down. My residence is now worth about $470k, but I have very little cash in the bank. I figure there has to be a reliable way to use all this equity as a launchpad for my real estate investing journey. My market has been very hot for the last couple years, but is beginning to slow down. I’m looking to buy single family or small multifamily properties for long term rentals. My hope is to accumulate 10+ properties within the next 5 years so I can quit my middle-class W2 job and spend more time with my family. What are the best ways that I can leverage my equity to achieve my investing goals? 

You could do a HELOC to take advantage of the equity in your primary, and then do a DSCR loan for your investment property.

[Trevor Alexander]

Definitely HELOC or cash-out Refi. HELOC will be lower cost, and lower initial interest rate, but also is a variable rate. Going up to 80% LTV, you should be able to access roughly $175,000 cash.

Cash-out Refi will have a higher cost, and you'll trade in your current low rate for a 6-6.5%. You can do a fixed rate on a cash-out Refi, but my bet is the numbers on a HELOC will look more favorable.

[Bud Gaffney]

@Drake Taylor cash out refi! Get that dead $ to work :)

[Mike Klarman]

Drake, definitely tap into equity.  But not in a grand way.  Do not be grandiose in your journey.  No reason to start big.  If you asked everyone here to raise their hand if they wanted to hold 10 multi-families in next 5 years not, everyone would right?

Now, if that's your goal to purchase these multifamily buildings, perhaps fix them up and refi them even, and start building your monthly cashflow then you have to realize what that will cost if the capital for the purchases is coming from you.  On Multi's you will need good credit, and get 75% financing on a purchase and maybe 80% on a fix n flip for a multi.

So you buy a multi for 400k let;s say.  100k of that is on you.  So how many can you realistically buy?  Hard to save up a 100k on a middle class W2 job if you have bills like mortgage, car note, etc.

Think about making money flipping the SFH properties to create capital for your real estate company that then will use that capital to create your portfolio.

Like I said, don't draw down your entire line of credit.  75k is more than enough to get into a deal, carry the costs, and then sell it and have like 125k and then you do it again and again and then you have 200k in the account and you never stop doing it but now as your account builds up you can make offers on multis that go for 750k.  You'd need 170k - 190k to do that deal.  They are very capital intensive and once you go over 4 units lenders change their guidelines, some won't even do them.

[Mordy Chaimovitz]

Why tap into your equity? If you find a good deal chances are you can find a money partner who would be interested in investing with you. 

that's what I did. 

I bought my current residence 8 years ago for 340k. Its probably worth around 550k now. Not to mention the debt paydown i have done over the years. I have enough equity in my home to fund a couple of small properties. 

Yet i just bought 2 townhouses using non of it because i found someone to be the money partner in my deal. 

I am doing the work he is providing the funds. I pay no interest or fees on a heloc or refi and i am not putting my personal residence at any risk at all. 

The only reason you might want to do heloc or refi would be if your looking to brrrr. 

But its not necessary 

[Joshuam R.]

People ask for clarity on their limited current understanding and position, it is little annoying when others post about a different strategy than what the person posting has asked. Unlimited knowledge on here, please dear members just bring some clarity, yay or nay information that way posters get a light shined on their current muddy waters.

Yes @Drake Taylor your position is excellent to safely tap into a heloc and enjoy the ride of testing your risk factors, by doing so you will learn more and earn more. Your current status is the same status as my brother-in-law, and this same strategy that I broke down to him few days ago. Same strategy I will once again utilize in the coming days.

Best wishes.

[Jared Hottle]

I would say HELOC as well but another potential option is sell your house as the gains will be tax free since it is where you have lived for 2 years. This will give you cash and lower your DTI. Look to house hack multifamily or buy a house you can fix up as well as having the cash to put down on an investment property. Can do alot with a 200k plus downpayment. Maybe even get into NNN investing. Lots of options.

[John Morgan]

@Drake Taylor

HELOC is the best way since you're locked in with a really low interest rate I assume. I've done a HELOC on my primary and also a cash out refi to snag properties to rent out. I was able to buy 3 rentals with 20% down on my cash out. If the numbers work, don't rule out a cash out refi. I've bought 10 out of 16 of my properties from cash out refis. It's an easy way to scale up for free with no out of pocket expenses. Use equity to bring you more cash flow and properties. Good luck!

[Laverne Rivera]

This is so good to hear as a new investor I was looking into taking out a HELOC to invest in a multifamily homealso but my realtor told me that it was a bad idea and I should leave the equity in my home as is

[Sebastian Marroquin]

Wait for the 2 year mark: this way you don't have to pay capital gains. 

Sell the home: walk away with about $200k 

Buy a primary home with 3.5% to 5% down payment (all cash :) I can explain how) it sounds like an oxymoron but It's not! 

Go look for a fixer in your town : you will have all cash so a home sitting on the market at around $380k 

Offer $300k : (you may have to put a couple of offers or look for off market homes : think whole sellers - meetups etc). 

Renovate the home with about $50k : you will be at around $350k - assuming the home is worth about $450k 

Refinance it at 80% or $360k : to get your money back from Reno. 

Now you have a primary home - pretty much starting to build equity again and paying down the loan. 

Then go do it again and again using the Brrr method. and get your 10 properties 

Go after the same type of house in the same area - and become an expert in that asset. 

Once you have 10 homes - you will likely want to 1031 exchange into multi family props. 

(Not trying to be overly simplistic) each one of those steps will take a bit of effort and time, but you once you build your team (Realtor, Lender, contractor, PM and tax man ) You will be off to the races. 

Let me know if you need help securing a Realtor and lender!