Sell Primary Residence to Use Equity for Rentals?
Member since 2023 路 3 posts 路 5 votes
Sell Primary Residence to Use Equity for Rentals?
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Investor 路 VA 路 Member since 2015 路 21k+ posts 路 19k+ votes
2y@Robin Roundtree
Personally I would say no. This is fraught with risk and destroying your personal life / marriage.
What if you sell your home take that equity move and end up losing that money? Then you just moved to a place you moved to not because you want to live there but because it has cheap rentals.
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27 Replies
- Realtor 路 Atlanta, GA 路 Member since 2021 路 239 posts 路 120 votes2y
@Robin Roundtree While I'm unfamiliar with the Idaho market, I'm familiar with Georgia, therefore I'm a bit biased. However, If the idea of selling your current home and making a move to Atlanta or Fayetteville, NC is on the table, have you considered the house hacking strategy?
You will find abundant information here on BP by typing house hacking into the search bar.
In short, House hacking involves living in one unit of an SFR or Multi-unit property while renting out the other. By doing this, you can build equity in your new property while someone else pays the majority of the mortgage through rental income. Unfortunately, you will have to bite the bullet and deal with current interest rates should you decide to finance.This strategy, however, should soften the blow, allowing your move to be a smart financial step and add a personal touch to your investment journey. It offers you a home and a strategy to grow your investment portfolio. A basic win-win situation!
- 2yWale LawalBusiness MemberReal Estate Broker 路 Houston | Dallas | Austin, TX 路 Member since 2018 路 5k+ posts 路 2k+ votes
Your circumstances offer an interesting opportunity to take use of the equity in your current house to finance real estate investments. The following are some strategies to think about while using $250,000 to establish a real estate portfolio:
1. House Hacking: If you're moving, think about house hacking. You could live in one of the units and use the other $250,000 to buy a multi-unit property, which you would then rent out to pay your living expenses.
2. BRRRR Strategy: Apply the Buy, Rehab, Rent, Refinance, and Repeat (BRRRRR) method. Acquire properties in trouble at a reduced price, make repairs, rent them out, and then refinance to extract equity for the following venture.
3. Turnkey Properties: Look at real estate assets that are turnkey. Certain markets allow you to buy completely remodelled and rented houses that will generate rental revenue right away without requiring a lot of upfront effort.
4. Seller Financing: Seek for seller financing possibilities. It's possible for certain sellers to fund the sale of a home, so you can buy real estate without depending entirely on conventional financing.
It's critical to get advice from real estate agents, financial advisors, and other specialists before making any decisions in order to customize a plan that fits your risk tolerance and financial objectives. Since every market is different, thorough preparation is essential to the success of any real estate endeavour.Good luck!
NETWORTH BUILDERS5236 Reviews - Investor 路 VA 路 Member since 2015 路 21k+ posts 路 19k+ votes2y
@Robin Roundtree
Personally I would say no. This is fraught with risk and destroying your personal life / marriage.
What if you sell your home take that equity move and end up losing that money? Then you just moved to a place you moved to not because you want to live there but because it has cheap rentals.
7e investments53 Reviews - 2yJay HinrichsBusiness MemberReal Estate Consultant 路 Summerlin, NV 路 Member since 2014 路 45k+ posts 路 66k+ votes
Quote from @Chris Seveney:
@Robin Roundtree
Personally I would say no. This is fraught with risk and destroying your personal life / marriage.
What if you sell your home take that equity move and end up losing that money? Then you just moved to a place you moved to not because you want to live there but because it has cheap rentals.
agreed and you need a great w 2 to qualify for rental loans as well.. if anything selling and buying a house hack 4 plex and maybe another one with 20% down ?? that gives you some doors.. but I find a lot of folks if they are used to living in a home with a family etc.. moving into a 4 plex and living with their tenants is a non starter.. although for singles and newly married seems to work OK. Also quality of life and social demographics could not be farther apart from N. Idaho to the deep south. - Property Manager 路 Baltimore, MD 路 Member since 2014 路 1k+ posts 路 1k+ votes2y
It sounds like you have a one income household. Is it possible for you to get a job for a year or two, and just dedicate all that money as your REI Fund? You could pretty easily get a down payment built up if you're not touching that income.
- Accountant 路 Bryn Mawr, PA 路 Member since 2023 路 409 posts 路 321 votes2y
Is it crazy?... only if it doesn't work ha
Lots of great feedback and advice here all comes down to your values and after that your goals work on those first to slow your process down and really get clarity on what you are actually trying to accomplish.
Wish you well!Jonathan Bock, CPA
- Member since 2019 路 7k+ posts 路 4k+ votes2y
Quote from @Robin Roundtree:
Hi guys,
We have a home worth 650k, we owe 350,000 in a place where we couldn't afford to sell and buy another property (got in 2021, the 2.8% interest rate and before the crazy NW boom in Idaho.) We are stuck because my husband makes just enough to live, we've cut every possible expense and really want to acquire rentals but can't find the capital. We have 250k in equity in the home after realtor costs, is it crazy for us to sell, take the equity and move to a better cash flow market like Atlanta or Fayetteville, NC and start our rental acquisition? What are some great t (even if they're crazy) strategies for building the real estate empire with 250K if we could go anywhere and were will to do anything?
not worth it, so even with dead equity you're just fine.
- Real Estate Agent 路 Atlanta, GA 路 Member since 2020 路 1k+ posts 路 1k+ votes2y
@Robin Roundtree, like most markets, cash flow here in Atlanta is extremely tight unless you're pursuing a creative investment strategy like rent-by-the-room or MTR. To piggyback off others, this is not a sound plan unless you explore house hacking opportunities. Aside from that, there needs to be a more stable financial foundation before investing in RE. I recommend reading the book, "Real Estate by the Numbers" by J Scott and Dave Meyer to get a better idea of what this looks like. Best of luck!
- Real Estate Agent 路 Atlanta, GA 路 Member since 2020 路 414 posts 路 233 votes2y
Hey Robin - it's going to be tough to beat that rate, but I'm glad to hear you have some equity.
If you're planning to stay in Idaho - it's probably not a great idea to sell unless you can downsize into a smaller mortgage payment where you want to live. In all honesty, sounds like the best option here might be to find a way to increase your income so you can live more comfortably.
Can you house hack? Typically, when I'm counseling with an out of state client that is living in a higher cost of living area - the client is usually better off to house hack in an expensive market rather than buying RE in a lower cost of living area unless there is a lot of excess capital to work with.
If you have any questions - feel free to reach out as I am happy to chat.
- 2yBonnie LowPro MemberLender 路 Asheville, NC 路 Member since 2016 路 1k+ posts 路 1k+ votes
As others have said, selling your current home and moving to a less expensive market has its downsides. Namely, you're going to need to take some of that equity and use it a downpayment for your new home and you might not have as much left to work with as you thought. With the current high interest rate environment you're looking at probably double the interest rate and if you're making just enough to live I'm guessing your DTI is pretty high so you're not going to get premium rates. Now would be a good time to really drill down on creative finance options. In other words, learn to buy with low or now downpayment (read Brandon Turner's book) and look into tactics like wholesaling and subject to. There's no shortage of people who have made it work with less going for them than you have so I'm confident you can find a way. Sometimes pushing yourself when you don't have the comfort and convenience of two good W2s and a lot of reserves can be an advantage because you learn how to make it work simply because you must. You got this!
- Investor 路 Arroyo Grande, CA 路 Member since 2014 路 1k+ posts 路 1k+ votes2y
Hey Robin, I can't give you specific advice because everyone's situation, risk tolerance, etc. is so different. But I can tell you about my similar experience.
In 2013 my wife and I purchased a town home in SF's Bay Area (Walnut Creek). It's a bit of a story but we ended up selling it in 2017 and moving to Metro Detroit.
We had about $280k of capital to use for RE investing once we were settled. I used that to source off-market deals in the city of Detroit, pay cash, do some cosmetic rehab, and then refi back out.
Flash forward 2.5 years and we'd built a 12-door portfolio with almost no cash left in any of the deals. We saved up for another year, sold our home in Michigan, and moved back to California.
Now we're building an ADU at our primary and will be financially free once it's done.
- Member since 2023 路 3 posts 路 5 votes2yWow! That sounds amazing! Can I ask how you sourced off market deals? That sounds exactly like what we want to do, obviously with higher mortgage rates to consider we only want to engage in cash only rehabs (my husband is a GC and can do everything) and also would flipping and selling or rehabbing and renting be better in this market? I鈥檝e heard Detroit is a great spot for REI as well as parts of Ohio.
Quote from @Travis Biziorek:
Hey Robin, I can't give you specific advice because everyone's situation, risk tolerance, etc. is so different. But I can tell you about my similar experience.
In 2013 my wife and I purchased a town home in SF's Bay Area (Walnut Creek). It's a bit of a story but we ended up selling it in 2017 and moving to Metro Detroit.
We had about $280k of capital to use for RE investing once we were settled. I used that to source off-market deals in the city of Detroit, pay cash, do some cosmetic rehab, and then refi back out.
Flash forward 2.5 years and we'd built a 12-door portfolio with almost no cash left in any of the deals. We saved up for another year, sold our home in Michigan, and moved back to California.
Now we're building an ADU at our primary and will be financially free once it's done.
- Investor 路 Arroyo Grande, CA 路 Member since 2014 路 1k+ posts 路 1k+ votes2y
Quote from @Robin Roundtree:
Wow! That sounds amazing! Can I ask how you sourced off market deals? That sounds exactly like what we want to do, obviously with higher mortgage rates to consider we only want to engage in cash only rehabs (my husband is a GC and can do everything) and also would flipping and selling or rehabbing and renting be better in this market? I鈥檝e heard Detroit is a great spot for REI as well as parts of Ohio.Quote from @Travis Biziorek:
Hey Robin, I can't give you specific advice because everyone's situation, risk tolerance, etc. is so different. But I can tell you about my similar experience.
In 2013 my wife and I purchased a town home in SF's Bay Area (Walnut Creek). It's a bit of a story but we ended up selling it in 2017 and moving to Metro Detroit.
We had about $280k of capital to use for RE investing once we were settled. I used that to source off-market deals in the city of Detroit, pay cash, do some cosmetic rehab, and then refi back out.
Flash forward 2.5 years and we'd built a 12-door portfolio with almost no cash left in any of the deals. We saved up for another year, sold our home in Michigan, and moved back to California.
Now we're building an ADU at our primary and will be financially free once it's done.
Sourcing strong off-market deals is easy. You just have to be willing to put in a lot of hard work to do it. Network, drive around, cold call houses you think might be good fits, network some more, go to meetups, do some deals (even if they aren't home runs) so folks know you're a serious investor.
You'll start finding a handful of deals that way. Then, eventually, if you keep it up for 2-3 years the deals will just start coming to you.
I can't comment on what's "better" when it comes to flipping, BRRRR, etc. because, again, I can't speak to your specific situation. I can only tell you what I did and why it made sense for me.
- 2yV.G JasonPro MemberInvestor 路 Member since 2022 路 3k+ posts 路 3k+ votes
Quote from @Robin Roundtree:
Hi guys,
We have a home worth 650k, we owe 350,000 in a place where we couldn't afford to sell and buy another property (got in 2021, the 2.8% interest rate and before the crazy NW boom in Idaho.) We are stuck because my husband makes just enough to live, we've cut every possible expense and really want to acquire rentals but can't find the capital. We have 250k in equity in the home after realtor costs, is it crazy for us to sell, take the equity and move to a better cash flow market like Atlanta or Fayetteville, NC and start our rental acquisition? What are some great t (even if they're crazy) strategies for building the real estate empire with 250K if we could go anywhere and were will to do anything?
Just stop.
I am not trying to crush your dreams, because you can do this REI game.....just later. Right now, if you can't scrape by at home you can't weather the volatility that physical real estate encompasses. It'd be absolutely ridiculous to engage in this when you are in position of weakness financially--that's where you are. This will teeter on all areas getting absolutely wrecked--marriage, kids if you have them, etc.Buckle up, get stronger then enter it. You have time, don't feel forced or rushed into this.
edit: Anybody that's giving input on how to enter when she clearly states where she's coming from should be ashamed. This is just predatory. Agents on this forum always trying to catch a penny to cost people a buck.
- 2yEngelo RumoraBusiness MemberInvestor 路 Toledo, OH 路 Member since 2013 路 4k+ posts 路 2k+ votes
Quote from @Robin Roundtree:
Hi guys,
We have a home worth 650k, we owe 350,000 in a place where we couldn't afford to sell and buy another property (got in 2021, the 2.8% interest rate and before the crazy NW boom in Idaho.) We are stuck because my husband makes just enough to live, we've cut every possible expense and really want to acquire rentals but can't find the capital. We have 250k in equity in the home after realtor costs, is it crazy for us to sell, take the equity and move to a better cash flow market like Atlanta or Fayetteville, NC and start our rental acquisition? What are some great t (even if they're crazy) strategies for building the real estate empire with 250K if we could go anywhere and were will to do anything?
I moved to the Kansas City from Sydney in 2012 with $10,000
After a few flips, I "progressed" to Toledo, Ohio in 2014.
A few companies later, thousands of flips and the rest if history 馃榿
It will depend how hard you dive in.
The deals are always out there to be wholesaled, flipped, BRRRR, etc...
$250,000 can go a long way in tertiary markets (Midwest 馃憤) and over time you could make real estate a full time living with that starting capital.
And IMO, you won't worry too much about a 2.8% fixed loan or an 8% fixed loan.
Money makes money.
God Bless America hehe
Just my opinion and wishing you the best 馃檹
- Investor 路 Arroyo Grande, CA 路 Member since 2014 路 1k+ posts 路 1k+ votes2y
Quote from @V.G Jason:
Quote from @Robin Roundtree:
Hi guys,
We have a home worth 650k, we owe 350,000 in a place where we couldn't afford to sell and buy another property (got in 2021, the 2.8% interest rate and before the crazy NW boom in Idaho.) We are stuck because my husband makes just enough to live, we've cut every possible expense and really want to acquire rentals but can't find the capital. We have 250k in equity in the home after realtor costs, is it crazy for us to sell, take the equity and move to a better cash flow market like Atlanta or Fayetteville, NC and start our rental acquisition? What are some great t (even if they're crazy) strategies for building the real estate empire with 250K if we could go anywhere and were will to do anything?
Just stop.
I am not trying to crush your dreams, because you can do this REI game.....just later. Right now, if you can't scrape by at home you can't weather the volatility that physical real estate encompasses. It'd be absolutely ridiculous to engage in this when you are in position of weakness financially--that's where you are. This will teeter on all areas getting absolutely wrecked--marriage, kids if you have them, etc.Buckle up, get stronger then enter it. You have time, don't feel forced or rushed into this.
edit: Anybody that's giving input on how to enter when she clearly states where she's coming from should be ashamed. This is just predatory. Agents on this forum always trying to catch a penny to cost people a buck.
Seems to me she's debating selling and moving to a lower cost of living area. That would put her in a very strong financial position.
Normally, with that kind of equity, I'd tell people to consider a HELOC. I refrained from that though when she quickly got into the "makes just enough to live" part.
I always tell folks that HELOC's are great if you can shoulder the extra debt servicing without losing sleep.
Overall, I agree anyone telling her to leverage her existing equity is not looking out for her best interests.
- 2yNicholas L.Pro MemberFlipper/Rehabber 路 Pittsburgh 路 Member since 2018 路 6k+ posts 路 5k+ votes
there are a bunch of different questions all wrapped up in your post.
should you sell your primary residence? i have no idea, i don't know anything about you and couldn't possibly advise you on this.
should you move to the southeast? i have no idea, i don't know anything about you and couldn't possibly advise you on this.
should you invest in Atlanta or Fayetteville? ...maybe, but only if you have a strategy. @Michael Dumler absolutely nailed it. if you just buy random long term rentals with conventional financing, whether you buy them living in Atlanta or from Idaho, you will most likely lose money. - 2yAlan AsriantsBusiness MemberReal Estate Agent 路 Philadelphia, PA 路 Member since 2019 路 1k+ posts 路 1k+ votes
Its tough to make many markets cash flow, even if the initial price points seem attractive. Don't forget the price of the property has a lot to do with how much they rent for. they are directly related
Don't expect to move to a different state with lower home prices and think you can grab everything up. That 250k in equity will likely dry up fast.
Moving to a completely different area is also a major life decision. I hear CDA is one of the most beautiful places in the USA, and likely going to be a great destination for years to come.
Why not keep waiting, finding more creative ways to make income, and once your equity has increased even more, you can pull out some more cash from your primary and invest locally or out of state for extra cash flow. this is by no means a short term plan. But short term is rarely worth it unless you are taking big risks...
Hope this helps
Alan Asriants - New Century Real Estate 590 Reviews - Attorney 路 Columbus, OH 路 Member since 2023 路 193 posts 路 145 votes2y
Quote from @Robin Roundtree:
Hi guys,
We have a home worth 650k, we owe 350,000 in a place where we couldn't afford to sell and buy another property (got in 2021, the 2.8% interest rate and before the crazy NW boom in Idaho.) We are stuck because my husband makes just enough to live, we've cut every possible expense and really want to acquire rentals but can't find the capital. We have 250k in equity in the home after realtor costs, is it crazy for us to sell, take the equity and move to a better cash flow market like Atlanta or Fayetteville, NC and start our rental acquisition? What are some great t (even if they're crazy) strategies for building the real estate empire with 250K if we could go anywhere and were will to do anything?
You could use a home equity line of credit to put a down payment on your rental(s). I'd suggest starting with a small multi-family unit in a location that is experiencing appreciation and cash flow (like Columbus, Ohio). You'll want to make sure the cash flow from the property you purchase covers or exceeds the additional payment you'll incur from the HELOC.
- 2yMarc RiceBusiness MemberReal Estate Agent 路 Columbus Cleveland Dayton, OH 路 Member since 2018 路 2k+ posts 路 1k+ votes
Quote from @Robin Roundtree:
Hi guys,
We have a home worth 650k, we owe 350,000 in a place where we couldn't afford to sell and buy another property (got in 2021, the 2.8% interest rate and before the crazy NW boom in Idaho.) We are stuck because my husband makes just enough to live, we've cut every possible expense and really want to acquire rentals but can't find the capital. We have 250k in equity in the home after realtor costs, is it crazy for us to sell, take the equity and move to a better cash flow market like Atlanta or Fayetteville, NC and start our rental acquisition? What are some great t (even if they're crazy) strategies for building the real estate empire with 250K if we could go anywhere and were will to do anything?
If you've lived in that house 2/5 years as your primary residence, you can also sell it tax free up to $250k single/$500k married-filing-jointly. Otherwise you'd need to 1031 exchange it.
You can research an investment-line of credit through PenFed as well.
Refinancing at a 7.5% interest rate probably doesn't make sense.
You could do a HELOC on your personal residence and use those funds towards an out of state investment. I'd recommend evaluating Ohio's submarkets also.
Marc Rice | Investor Friendly Agent at Reafco Tailwind Team574 Reviews - Lender 路 Seattle, WA 路 Member since 2014 路 2k+ posts 路 899 votes2y
@Robin Roundtree- thanks ....if you move - will your husbands income / employment be able to continue ? if yes - great - if not - moving without any income stream isnt the best idea
- Investor / Landlord 路 Columbus, OH 路 Member since 2015 路 276 posts 路 174 votes2y
You've received a lot of good advice and, at least in one man's opinion, a lot of questionable advice. I concede I'm a bit conservative but look in the mirror and tell yourself honestly that you have practically no real estate knowledge and no real estate experience and then ask yourself is that's the footing you want to be on as a basis for totally disrupting your life and risking $250k. Business is about making good decisions.
I started in this business 40 years ago where you are today. Worse, I had virtually no money, no equity, and a wife who almost had a heart attack at the prospect of me leaving a job that helped us a lot but that I hated with a passion. Oh, interest rates at the time for Fannie/Freddie home loans were around 10% or a little higher having come down from 14% and then 12% to the 10%. These was a brief time prior to this where Prime Rate rose to OVER 20%.
Today you can't walk even 1 foot without tripping over real estate information, knowledge, and education. Back then, I believe there were ,perhaps, 2 books. Not wanting to stress my wife, I was super conservative and super careful (within the scope of my knowledge at the time) so that she would never panic. I started making money and, if I remember correctly, I never had real estate related loss for well over a decade. To this day, I've only had 2 losses and they totaled about $8k - a pittance when compared to the profits. BTW, I'm 95% retired - sold all the rentals, etc. If someone waves a juicy deal under my nose, I still jump on it. It's in my blood.
Bottom line, I can think of not one reason to jeopardize what you have, least of all in such a dramatic way as moving out of Idaho. Even if you live in a market that's almost impossible to do a deal in (e.g., it's very small and isolated) now is the time to get a lot more real estate and investing education and keep your eyes searching for something local that you can get the seller to finance. Even if the seller says "no", you start gaining experience in negotiation which will be a key to your success. If there is a REIA or meetup not too far, definitely join but be cautious until you get a solid sense of the agendas, knowledge and honesty of the participants.
There's lots of real estate investing education at BP, online in general, and with some noted investor educators around the country. Be cautious, almost all of the good educational courses are under $1K, the bad tend to run thousands of dollars.
Good luck, good skill, good knowledge.
- 2yMilton ChamberlainPro MemberReal Estate Agent 路 Kansas City, MO 路 Member since 2019 路 235 posts 路 107 votes
Assuming you are just now beginning investing, I recommend picking the 'lowest hanging fruit' and 'walking path of least resistance.' IMO, that is house hacking into a newish multi, and leveraging the lender's money by taking advantage of 3.5-5% down payment. While the cash flow and cap rate won't be sexy on that first property, it will appreciate well both in value and rent rate, and give you a good foundation to stand on. then, once settled and well-acquainted with your new market, you figure out the best way to leverage the rest of your $225k. and then either stay in the first multi, or move out and rent the side you were living in.
In my market of the KC metro, good condition duplexes in high demand areas ( 3 bed 2+ baths/unit) are 330-450. Which would require you bringing ~$25k to close. your plan seems smart and based in the reality of our current economic conditions.
if you would like additional info about what's available in my midwest market, including analysis of possible acquisitions, reach out to me.
- Developer 路 Charleston, SC 路 Member since 2015 路 100 posts 路 91 votes2y
I'm not really into "crazy strategies" to build your rental portfolio! Ha ha. It's not important how much money you have if you aren't educated in the space. I'm seeing comments on here telling you to stop, saying it's a risk, etc. The biggest risk you can take is taking that 250K and jumping in without educating yourself on what a good deal looks like.
Either partner with someone who can invest that money for you, or spend some time/resources getting up to speed on how to best go about jumping into any market you choose.
I commend you for asking the question here in this forum, and I would encourage you to ask more and more.
- Real Estate Broker 路 Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH 路 Member since 2013 路 30k+ posts 路 20k+ votes2y
Quote from @Robin Roundtree:
Hi guys,
We have a home worth 650k, we owe 350,000 in a place where we couldn't afford to sell and buy another property (got in 2021, the 2.8% interest rate and before the crazy NW boom in Idaho.) We are stuck because my husband makes just enough to live, we've cut every possible expense and really want to acquire rentals but can't find the capital. We have 250k in equity in the home after realtor costs, is it crazy for us to sell, take the equity and move to a better cash flow market like Atlanta or Fayetteville, NC and start our rental acquisition? What are some great t (even if they're crazy) strategies for building the real estate empire with 250K if we could go anywhere and were will to do anything?
Don't sell your house. Keep your house.
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