How to go beyond the asset rich but cash poor stage.
Taylor Mill, KY · Member since 2017 · 47 posts · 16 votes
My wife and I have 4 houses/ 5 doors with a mixture of mid and short term rentals. A couple were pretty distressed that we rehabbed to be very nice doing the work ourselves, and have built a decent amount of equity. We are self funded, buying them slowly and utilizing a HELOC from one of the houses but this is maxed out. It will probably take years to pay down this HELOC let alone continue investing.
One of the things that attracted us to real estate is the ability to accelerate as you grow, whereas we’re finding the opposite. How are people making the jump from this awkward stage of owning real estate but Cash strapped, to making somewhat regular deals? Are outside investors the only option? Thank you!
Sounds like now is a great time to refinance!
I'm sure there will be many people who will echo this, but by refinancing on that equity, it will hurt your short-term cash flow, but it will put cash in your pocket to be able to continue to grow and scale and become a bit more 'liquid'.
What are your current rates on your properties? The only 'uh oh' I'm hearing from folks right now is that they have a set of the 2020-era "golden handcuffs" of some crazy sub-4% rate that they don't want to get rid of. If that is the case, then we need to have a different conversation.
Sounds like a great position to be in going into the Spring, happy to connect and help if I can!
Good luck!
Sounds like now is a great time to refinance!
I'm sure there will be many people who will echo this, but by refinancing on that equity, it will hurt your short-term cash flow, but it will put cash in your pocket to be able to continue to grow and scale and become a bit more 'liquid'.
What are your current rates on your properties? The only 'uh oh' I'm hearing from folks right now is that they have a set of the 2020-era "golden handcuffs" of some crazy sub-4% rate that they don't want to get rid of. If that is the case, then we need to have a different conversation.
Sounds like a great position to be in going into the Spring, happy to connect and help if I can!
Good luck!
That is definitely us for one of our houses. Bought in 2018, hadn't been changed since the 70s, and in a very walkable metro area. This has the most equity with a 3.8% rate and the house with the HELOC. What amount of equity would you say is worth it to refinance? I wouldn't want to hurt cash flow to get only $5-10k for example. And is there a lending product that allows you to lump the equity of multiple houses together for a combined HELOC or something like this?
A HELOC for an Investment Property is an incredibly risky note for a lender due to it being in the second position of a property that the guarantor doesn't live. On paper, it is much easier to walk away from and has a (comparably) higher rate of default.
Unfortunately it does become a numbers game of "how much am I willing to sacrifice for cash in my pocket now". The good news is that rates have gone down and are as low as they've been in probably 3 years, so if you do go after a refi or two, depending on leverage you should see the low 6s and maybe even creeping back into the 5s again.
First, you should never use a HELOC to buy property. High interest rate, and you lose the flexibility of the loan since it's tied to one property. You should look into getting a LOC on a business or personal basis. This way you can use it for any immediate cash needs, and re-use it when you pay it off. You can use it on any property and, the most important thing is if it was tied to a property, like yours is, if you sold that property, you would have to pay it off and lose it.
Adding a loan, or getting a higher loan (refi), to pull minimal cash out and ruin CF is not the way to go. You recognized this. The best way to access cash is by selling a property to access the equity and move forward with that cash. You have cash in your hands, it's just frozen...and losing money for you as dead cash. The timing of this is critical in order to make this a financial benefit. Once your appreciated equity is equal to the equity you paid for (DP), that is the moment when your frozen cash starts to lose value.
Look at it this way. Your equity is your cash (frozen) and is actually what you are paying for the property. This is assuming your property is cash flowing. The relationship between your equity and your property value, is the true value of that equity. Let me show you an example:
1 - Assume you paid $20k (DP) for a $100k property. That means you paid for $20k in equity, and that equity is buying you a property worth 5 times its face value.
2 - The property appreciates $20k, which means you have a property worth $120k and equity worth $40k. That means your equity is buying a property worth only 3 times what you paid for it.
3 - Sell this property and you walk away with $40k, as a DP for a property worth $200k. That's $80k more in value than if you kept the property. A note here, I haven't forgot closing costs. It always seems to work out whereby the time this happens, the paydown on from the mortgage payment pays for the C.C.
4 - Also, by this time the accumulated cash flow recovers your initial cost (DP), so you have nothing in the property, so that $40k is all profit.
5 - If you do this correctly, your "exit" should be able to double the returns in both CF and PV from where you entered the initial deal.
Sitting on equity, thinking you are gaining as your equity goes up, is just plain wrong. It's just math. Keeping your cash moving forward means your cash is working for you and not sleeping on a recliner with beer in one hand and the remote in the other. That's your equity. Put it to work.
This is a really common stage, you’ve built equity but your capital is trapped. The shift usually comes from realizing you don’t need to wait to “save your way” into the next deal. You need to unlock what you’ve already built.
Most investors in your position do one of three things: They refinance stabilized properties and redeploy the proceeds into the next deal. They start being more intentional about recycling capital, meaning every deal is structured with the next one in mind, not just held passively. Or they bring in outside capital to accelerate, not because they have to, but because it lets them scale faster than their own balance sheet allows.
Also worth looking closely at your current portfolio. If you have properties with strong equity but weak cash flow, sometimes repositioning or even selling one to free up capital can move you forward faster than holding everything. The people who break out of this phase aren’t necessarily finding better deals, they’re getting more efficient with the capital they already have.
My wife and I have 4 houses/ 5 doors with a mixture of mid and short term rentals. A couple were pretty distressed that we rehabbed to be very nice doing the work ourselves, and have built a decent amount of equity. We are self funded, buying them slowly and utilizing a HELOC from one of the houses but this is maxed out. It will probably take years to pay down this HELOC let alone continue investing.
One of the things that attracted us to real estate is the ability to accelerate as you grow, whereas we’re finding the opposite. How are people making the jump from this awkward stage of owning real estate but Cash strapped, to making somewhat regular deals? Are outside investors the only option? Thank you!
@Eric Davenport, congrats on your portfolio. I’m in a similar spot and really interested to see what feedback others share on this.
I ended up building a lightweight CRM called EvelraOS (www.evelra.com) along with a deal engine, DealGrade (www.dealgrade.io), mainly because I felt like having everything in one place was vital. It’s also been really helpful for quickly showing potential partners or investors how the portfolio is actually performing. Also, having a way to grade deals super fast as not to waste too much time is always key.
I’m sure larger operators are using expensive tools for this, but for the rest of us, you’ve got to build something that works.
Following along on this one. Good luck!