With high equity, sell or HELOC?

2 Replies

I just recently moved into a new house and have my old house on the market. I'm hoping the brilliant Bigger Pocket members have some ideas/answers/feedback. Here's the deal. If I rent the property, I will likely cashflow about $300 per month. That's not including any reserves, that's simply projected rent minus my PITI. If I sell, I should get into the six figures after commissions are paid and note is paid off, but property values in the area are still climbing. With that money, we were going to finally start investing seriously into real estate. Is it possible to get the best of both worlds? Get a sizeable HELOC to start investing while renting the property and cashflowing about $300 per month? Or is it best to just keep it on the market, get my eventual payout, and move on to the next property?

Great question @matthew K. , here's another option you have. Instead of HELOC, why not simply refinance, and use the equity to purchase another property. You don't necessarily have to sell, if you don't want.

Also, keep in mind, there are great benefits as an investor of income properties, you can write off, depreciation costs, and if, it doesn't rent, you write that off as well. Disclosure, I'm not a tax advisor, but speak to a local CPA. 

What my investors do, is they locate nice neighborhoods, and buy the ugly duckling of the house, spruce it up and rent it out or sell it.  

Anyhow, hope this helps. 

Rudy Vazquez. 

@Matthew K. there are tax benefits to either strategy.

If you've lived in your old house for 2 out of the last 5 years, you can exclude up to $250k ($500k if you're married) of the gain from your taxable income.

If you use funds from a HELOC, you tap into the equity of your old home, pull out money tax free, and invest it. The HELOC interest would be deductible.