What would you do with $200,000?

Question

Hi,

I’m fairly new in the world of investment and I am wondering what you would do if you were in my shoes.

I have (only) one rental property. It’s worth about $300K and I owe $100K on so that leaves us with about $200K in equity.

In 8 years it will be paid off (we did a 15 year loan) and I currently rent it for $2,000/month. Cash flow negative $200/month. The house is in very good condition and we have great tenants who could stay there for the next 10-20 years.

My goal is to build wealth in the long term. What would you do with this $200,000 if you were in my shoes?

I was a teacher for 11 years and just quit my career and became a full time real estate agent. Still a newbie but loving this industry it so far!

Thank you in advance for your feedback!

Lee Ripma · Answer

" my goal is to build wealth long term " Time to use that equity to buy more properties then!

Andy Mirza · Answer

@Franck Brichet I understand wanting to own something outright and I'm not opposed to it. Everyone's risk tolerance is different and the amount of leverage each person uses comes down to personal choice.

In my opinion:

1. Having a cashflow negative investment when you're transitioning from a regular paying job to a commission only job is a huge financial risk. What happens when you have a lean gap between commissions and you have a 6 month vacancy?

2. You can avoid that scenario by doing a 1031 exchange into two or more rentals with positive cashflow. Your current rental doesn't qualify under the 1% rule. Find something at the 1 1/2 to 2% rule.

3. You can still set up the debt so that it gets paid off in a short amount of time. I'm just saying that you've got a lot of equity in a property that's not making enough cashflow.

Franck Brichet · Answer

@Lee Ripma thank you for your response. I appreciate your feedback.

Franck Brichet · Answer

@Andy Mirza Thank you for taking the time to respond. I appreciate it.

My rental will be paid for in 8 years and should bring $1200/monthly cash flow after that. I could refinance it for 15,20,30 years today and have positive cash-flow right away, but I like the idea (and security) of having a rental that is paid for. If I refinance and dig in the equity and start again I feel like I’m taking a step back. Cash-flow vs equity. What do you think? I’ll research the 1031 exchange option too. Thanks!

Jon Schoeller · Answer

Hello Franck,

Take out enough to put a down payment on another rental. BRRRR rinse and repeat.

Paul Moore · Answer

@Franck Brichet you got some great advice here. If you 1031 out of your property while the market is still strong, and find properties with better cash flow, you could be in a better position going forward.

Franck Brichet · Answer

@Theresa Harris Thank you for your response. I appreciate it.

Franck Brichet · Answer

@Jonathan G. Thank you for your feedback Jonathan.

Franck Brichet · Answer

@Jon Schoeller

Thank you for your response Jon!

What would you do with $200,000?

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