Have equity but need help figuring out how to utilize it.

[Konner Karr]

Hey, I have always had a passion for Real Estate Investing for retirement purposes and passive income, but need some advice for my next financial move. I have always wanted to stick to single family’s or duplex’s, not a big fan of condos or town homes due to HOA's(but open to them).

My wife and I have bought our first home, Single Family Home, that we purchased for $450k with a 3% interest rate on it back in 2021. The mortgage is $2250 including(PITI) The home has basement apartment, 2 beds 1 bath, which we rent for $1400, utilities included. The upstairs is a 5 bedroom, 3 bathroom which is where we are atm. The upper portion could rent for $2600-2800. We are in Utah County, UT.

We have paid it down the mortgage a bit and owe $360K on it now. It now appraises for more than $700k, more closer to $740k. We are wanting to dip into the equity to purchase another home, possibly another live in rental like we have now(SFH with basement apartment). Only issue/issues are that we have two cars that are not paid off, totals to around $30k. And then we have a current HELOC that has $35k on it. So about $65k of consumer debt.

We have talked to a local real estate investor/agent and they recommended we can either a)take out a HELOC(hopefully around $150-200k) to pay off all debt and then have buying power for the next property or b) Do a cash out refi which would give us $95k of cash after all the debt is paid off. I am concerned with option b just because the interest rate would jump from 3% to 5.7% and over the length of the loan I would be paying double the amount of interest compared to the HELOC. I would hate to lose my 3% mortgage rate but I do understand it may benefit us by getting more real estate.

Another thing to note is that the upper portion of our current house would need some work done on it like updating the kitchen and bathrooms, new roof in 2-3 years, and new flooring(carpet and refinishing the hardwood). I want to get more properties but I feel like I’m stuck or maybe scared to make a move just because our current house needs a lot of work but also I do have a decent amount of equity to utilize.

Question is what should we do?

Please let me know what your thoughts are on this. Thanks for reading.

[G. Brian Davis]

If it were me, I'd clean up the car loans and the HELOC first, get the house stabilized (especially with the roof and updates coming), then use a HELOC strategically for the next acquisition, not to consolidate debt. You're just early in the scaling phase. Tighten the foundation and then expand.