Lots of Equity... What Should I Do With It?

2 Reply

OP

Brooklyn, NY · Member since 2016 · 39 posts · 19 votes

@Chris Seveney, thanks for your reply! Do you have any recommendations for the type of strategy I should pursue after getting the HELOC? I want to make sure whichever strategy I choose, I'm able to pay back the HELOC with no problem. Let me know your thoughts!

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

@Keisha F.

It depends on how active or passive you want to be. But of course you want something that will cash flow in order to make sure it covers the cost of the HELOC

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2 Reply

Konstantin GinzburgPro Member

Member since 2021 · 376 posts · 242 votes

Quote from @Keisha F.:

Hi everyone!

So, I've seen other's post about what to do with their equity but haven't found a strategy that's right for me. I own a 4-unit property in Brooklyn that I bought for $650k and is worth about $1.8M. Excellent credit score and $20k in cash, however, I do have a personal loan right now for $40k from business debt. I want to keep investing and am kicking myself for not figuring out a solid plan sooner when the market was better. I'm looking to invest in Chicago where my family is from but there's not a lot of inventory, I have no experience in renovations, and interest rates are scary. I considered using the BRRRR method but am worried about the after repair value and the renovations.

-Should I use a HELOC to buy a turnkey slightly under market value property for cash, cash out refinance, and repeat?

-Use the HELOC as a down-payment on a property that needs minor updates, cash out refinance, and repeat?

-Or wait until the market turns over, rates go down, and wait until there's more inventory available?

-Or are there any better strategies or suggestions??

Any help is GREATLY appreciated!

Since there is no way to determine when or if rates will go back down, I think a good mindset would be to proceed on deals and calculate your numbers with the interest rate you get. If the rates go up more, then you are you are set since your rate is locked. If the rates do go down over the next few years, then you will be able to refinance at that point to a lower rate. I don't see the likelihood of a large increase in inventory occurring in the future if there is a current inventory shortage in that market. New home construction has not kept up with market demand for over a decade and I think it will take time for inventory to balance out.

Regarding which strategy to choose for you: I think it is more of a matter of seeing what property is available on the market right now and basing your strategy around which property generates the best return on your investment once you calculate the numbers. Since it's more difficult to do a HELOC on an investment property compared with a primary residence, a cash out refinance might be the strategy you will need to select unless you are able to find a lender that will do a HELOC on an investment property.

3 Reply

OP

Brooklyn, NY · Member since 2016 · 39 posts · 19 votes

@Konstantin Ginzburg @Chris Seveney Thank you both for your reply! The HELOC would be on my primary residence so that I can fund an investment property. I'll look more at the inventory and see what I can find.

Tim Bee

Investor · CA · Member since 2023 · 196 posts · 107 votes

I definitely wouldn't buy in Chicago. It's has quickly climbed the list of one of the most dangerous cities for violent crime.

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

Quote from @Keisha F.:

Hi everyone!

So, I've seen other's post about what to do with their equity but haven't found a strategy that's right for me. I own a 4-unit property in Brooklyn that I bought for $650k and is worth about $1.8M. Excellent credit score and $20k in cash, however, I do have a personal loan right now for $40k from business debt. I want to keep investing and am kicking myself for not figuring out a solid plan sooner when the market was better. I'm looking to invest in Chicago where my family is from but there's not a lot of inventory, I have no experience in renovations, and interest rates are scary. I considered using the BRRRR method but am worried about the after repair value and the renovations.

-Should I use a HELOC to buy a turnkey slightly under market value property for cash, cash out refinance, and repeat?

-Use the HELOC as a down-payment on a property that needs minor updates, cash out refinance, and repeat?

-Or wait until the market turns over, rates go down, and wait until there's more inventory available?

-Or are there any better strategies or suggestions??

Any help is GREATLY appreciated!

Wow. If I were you.
1. I would sell and pay for capital gain
2. You have a mil. dolar in cash now
3. Buy property again, start with 25%LTV, DSCR 1.1
4. that may cost you 200-300k
5. For remaining 800k you could do BRRR without needs of DSCR HML
6. Either you use cash-secured 2% loan or do Portfolio LOC by constructing hedged portfolio that yield 6-10% ; loan interest is 6% so pretty much you loan for 0% interest.

4 Reply

OP

Brooklyn, NY · Member since 2016 · 39 posts · 19 votes

@Carlos Ptriawan - Whew! I had to google most of abbreviations lol! Thanks so much for your feedback! It seems like I need to educate myself further as this is a lot to digest. I'll report back!

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Podcast Guest on Show #222

Quote from @Carlos Ptriawan:

Quote from @Keisha F.:

Hi everyone!

So, I've seen other's post about what to do with their equity but haven't found a strategy that's right for me. I own a 4-unit property in Brooklyn that I bought for $650k and is worth about $1.8M. Excellent credit score and $20k in cash, however, I do have a personal loan right now for $40k from business debt. I want to keep investing and am kicking myself for not figuring out a solid plan sooner when the market was better. I'm looking to invest in Chicago where my family is from but there's not a lot of inventory, I have no experience in renovations, and interest rates are scary. I considered using the BRRRR method but am worried about the after repair value and the renovations.

-Should I use a HELOC to buy a turnkey slightly under market value property for cash, cash out refinance, and repeat?

-Use the HELOC as a down-payment on a property that needs minor updates, cash out refinance, and repeat?

-Or wait until the market turns over, rates go down, and wait until there's more inventory available?

-Or are there any better strategies or suggestions??

Any help is GREATLY appreciated!

Wow. If I were you.
1. I would sell and pay for capital gain
2. You have a mil. dolar in cash now
3. Buy property again, start with 25%LTV, DSCR 1.1
4. that may cost you 200-300k
5. For remaining 800k you could do BRRR without needs of DSCR HML
6. Either you use cash-secured 2% loan or do Portfolio LOC by constructing hedged portfolio that yield 6-10% ; loan interest is 6% so pretty much you loan for 0% interest.

to play devils advocate here of course mathematically this all works.. but really what is your experience in construction ?? Nothing riskier on the planet than BRRR from afar.. U made a fantastic purchase you have REAL equity I would be super careful of any leverage or anything else on this asset..
Dont get FOMO going and lever up or sell out only to find yourself with high risk projects.. If you were to sell out .. Syndicated investments with top shelf operators could be an option. But going into rehabbing with no experience and from a distance is far to risky in my mind.

JLH Capital Partners51 Review

6 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

Quote from @Jay Hinrichs:

Quote from @Carlos Ptriawan:

Quote from @Keisha F.:

Hi everyone!

So, I've seen other's post about what to do with their equity but haven't found a strategy that's right for me. I own a 4-unit property in Brooklyn that I bought for $650k and is worth about $1.8M. Excellent credit score and $20k in cash, however, I do have a personal loan right now for $40k from business debt. I want to keep investing and am kicking myself for not figuring out a solid plan sooner when the market was better. I'm looking to invest in Chicago where my family is from but there's not a lot of inventory, I have no experience in renovations, and interest rates are scary. I considered using the BRRRR method but am worried about the after repair value and the renovations.

-Should I use a HELOC to buy a turnkey slightly under market value property for cash, cash out refinance, and repeat?

-Use the HELOC as a down-payment on a property that needs minor updates, cash out refinance, and repeat?

-Or wait until the market turns over, rates go down, and wait until there's more inventory available?

-Or are there any better strategies or suggestions??

Any help is GREATLY appreciated!

Wow. If I were you.
1. I would sell and pay for capital gain
2. You have a mil. dolar in cash now
3. Buy property again, start with 25%LTV, DSCR 1.1
4. that may cost you 200-300k
5. For remaining 800k you could do BRRR without needs of DSCR HML
6. Either you use cash-secured 2% loan or do Portfolio LOC by constructing hedged portfolio that yield 6-10% ; loan interest is 6% so pretty much you loan for 0% interest.

to play devils advocate here of course mathematically this all works.. but really what is your experience in construction ?? Nothing riskier on the planet than BRRR from afar.. U made a fantastic purchase you have REAL equity I would be super careful of any leverage or anything else on this asset..
Dont get FOMO going and lever up or sell out only to find yourself with high risk projects.. If you were to sell out .. Syndicated investments with top shelf operators could be an option. But going into rehabbing with no experience and from a distance is far to risky in my mind.

Yeah , rehabbing only works in market that we know with contractor that we know ….. otherwise is not worth it …..

Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

Quote from @Keisha F.:

Hi everyone!

So, I've seen other's post about what to do with their equity but haven't found a strategy that's right for me. I own a 4-unit property in Brooklyn that I bought for $650k and is worth about $1.8M. Excellent credit score and $20k in cash, however, I do have a personal loan right now for $40k from business debt. I want to keep investing and am kicking myself for not figuring out a solid plan sooner when the market was better. I'm looking to invest in Chicago where my family is from but there's not a lot of inventory, I have no experience in renovations, and interest rates are scary. I considered using the BRRRR method but am worried about the after repair value and the renovations.

-Should I use a HELOC to buy a turnkey slightly under market value property for cash, cash out refinance, and repeat?

-Use the HELOC as a down-payment on a property that needs minor updates, cash out refinance, and repeat?

-Or wait until the market turns over, rates go down, and wait until there's more inventory available?

-Or are there any better strategies or suggestions??

Any help is GREATLY appreciated!

First thing- There's actually a lot of inventory in Chicago; it's just not listed inventory. You can start an off-market campaign to identify inventory. My recommendation:

1. First off check with a realtor and/or an appraiser to determine the value of your 4 unit to make sure you're not way off. I say this because many people use Zillow to determine value and it's wrong. While doing that also check on the average days on the market for the recently sold properties. You want to move out using data to make a decision.

2. Research 1031 exchange- If you decide to sell you can delay capital gain taxes by identifying a similar property to purchase in a specific amount of time after the sale.

3. Don't wait until the market turns and rates go down- While you are waiting, others are jumping on opportunities.

4. Regarding investing from afar without experience- Yes it may be scary but it's possible. It's just a matter of a lot of due diligence, including budgeting periodic visits to the out-of-state market; tons of interviews to identify your team. My biggest suggestion however is to see if you can identify a local partner to do the deal with you (Not a family member). A partner that is willing to put skin in the game with you.

312-681-7487

John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

@Keisha F. whether you look in Chicago or a different state, I would partner with someone who has the experience you are missing. I also would make sure this person is boots on the ground for where you want to invest. Chicago is a great market in a lot of ways for someone from NY since it has a lot of the same underlying fundamentals (primary market, great inventory, good lending for commercial RE, etc). Still, a lot of NY and California money has come to die here... you need to really know what you are doing.

I would listen to the Straight Up Chicago Investor's Podcast to get more intel on how Chicago actually is to operate in. I also would not stress about inventory. There is always more inventory here than I can buy when I am ready personally.

Gregory Nelis

Real Estate Coach · NC · Member since 2023 · 32 posts · 23 votes

Why do you want to invest in Chicago? Is there a neighborhood you found that is cashflowing well or appriciating better than your current investment? What types of numbers are you looking for?

These are all important questions that it seems you need to spend time on. If the numbers work out you should invest, if they do not you should not. There is a possiblility that your numbers are incorrect, but if you are just going with a feeling that isnt good enough. HELOC's can be valuable toools, but not the only ones.

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

Quote from @Keisha F.:

Hi everyone!

So, I've seen other's post about what to do with their equity but haven't found a strategy that's right for me. I own a 4-unit property in Brooklyn that I bought for $650k and is worth about $1.8M. Excellent credit score and $20k in cash, however, I do have a personal loan right now for $40k from business debt. I want to keep investing and am kicking myself for not figuring out a solid plan sooner when the market was better. I'm looking to invest in Chicago where my family is from but there's not a lot of inventory, I have no experience in renovations, and interest rates are scary. I considered using the BRRRR method but am worried about the after repair value and the renovations.

-Should I use a HELOC to buy a turnkey slightly under market value property for cash, cash out refinance, and repeat?

-Use the HELOC as a down-payment on a property that needs minor updates, cash out refinance, and repeat?

-Or wait until the market turns over, rates go down, and wait until there's more inventory available?

-Or are there any better strategies or suggestions??

Any help is GREATLY appreciated!

What to do, simple, buy rentals cash with 10% or better net caps, NO not in NY, Its all about knowledge. I do all my business out of state, 100% hands off

Abel CurielBusiness Member

Real Estate Agent · Queens, NY · Member since 2016 · 2k+ posts · 1k+ votes

Quote from @Keisha F.:

Hi everyone!

So, I've seen other's post about what to do with their equity but haven't found a strategy that's right for me. I own a 4-unit property in Brooklyn that I bought for $650k and is worth about $1.8M. Excellent credit score and $20k in cash, however, I do have a personal loan right now for $40k from business debt. I want to keep investing and am kicking myself for not figuring out a solid plan sooner when the market was better. I'm looking to invest in Chicago where my family is from but there's not a lot of inventory, I have no experience in renovations, and interest rates are scary. I considered using the BRRRR method but am worried about the after repair value and the renovations.

-Should I use a HELOC to buy a turnkey slightly under market value property for cash, cash out refinance, and repeat?

-Use the HELOC as a down-payment on a property that needs minor updates, cash out refinance, and repeat?

-Or wait until the market turns over, rates go down, and wait until there's more inventory available?

-Or are there any better strategies or suggestions??

Any help is GREATLY appreciated!

Hello @Keisha F.!

Congrats on the savvy investment & thanks for sharing your situation with the BP community!

I know there is tons to digest here so I'll keep it short.

- Consider pulling equity out via heloc/refi but be cautious in doing so as there are fees you want to account for.

There will also be acquisition fees for any property you get into so be sure to connect with a lender who can give you a good estimate on both the equity pull out and the new acquisition.

- Find out the property's value to determine if it makes sense to sell or pull equity out.

- Once deciding on the above, looking in landlord friendly states for small multi-family properties would be my next move. You've made a great investment to this point but NY is high risk on the landlord/tenant side of things so its time to diversify, get some cash flow, and grow a portfolio in a more investor-friendly state/market.

All the best!

Abel

REbuild Team - eXp Realty5239 Reviews

Eric James

Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes

No way I would sell unless you think the value would go down. I'd cash out refi an amount that would still have positive cash flow and use the proceeds to invest. Would NOT try long distance BRRR. I'd BRRR somewhere I can be highly present.

Jonathan KlemmBusiness Member

Moderator

Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes

Hey @Keisha F. - First off, it's a better thing to invest now BECAUSE the market cooled off - I'd encourage you to shift into that frame of mind......now is the time to be greedy while others are fearful!

Anyways, I am with @Chris Seveney, get a Home Equity Line of Credit.

I love investing here in Chicago because of our awesome team, properties at all price points, and an endless amount of inventory needing to be renovated. If you want to connect about the local market here, I'd be happy to, or if you need any referrals for agents, lenders, etc. just let me know.

[email protected]

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Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

Quote from @Keisha F.:

@Carlos Ptriawan - Whew! I had to google most of abbreviations lol! Thanks so much for your feedback! It seems like I need to educate myself further as this is a lot to digest. I'll report back!

The king in high inflation era is cash position. You could almost make riskless investment with cash hence I'm advising to sell.
If you do HELOC, variable HELOC rate is 9%, inflation is 5%. You lose money twice.
If you sell, you have cash, make easy 5-7%.

OP

Brooklyn, NY · Member since 2016 · 39 posts · 19 votes

@Jay Hinrichs - Yes, agreed. Unless I have a contractor I trust and can steer me in the right direction, I'm not comfortable with a heavy rehab.

OP

Brooklyn, NY · Member since 2016 · 39 posts · 19 votes

@Crystal Smith Thanks! I hadn't heard about off market properties until recently. A friend of mine just mentioned it to me this week. And agreed, I don't want to do nothing when deals are being made regardless of the market. Thanks for all of the recommendations. I'm going to look into everything you sent. I'll keep you posted on my progress.

OP

Brooklyn, NY · Member since 2016 · 39 posts · 19 votes

@John Warren Thanks, John! Will definitely check out the podcast. You're right, I need a partner to supplement where I lack.