Now What?? Refinance? Sell? Cash out? HELOC?

Question

I own two single family homes via conventional financing. One is cash flowing $560/mo. The second home I live in, but renovated the basement to be a rental which cash flows $300/mo. My renovations actually added approximately 750 sq ft of livable space and I anticipate my appraisal will be approximately $165,000 over what I paid for the property. Assuming my estimations are correct, where do I go from here to add more properties to my portfolio? How can I utilize this equity to efficiently purchase more rental properties?

Benjamin Aaker · Answer

Nice work finding ways to make money from the home you are living in. You first have to determine if you must have that cash flow to support yourself. If that money is currently going into the bank or investments, then you have some flexibility. Where do you go from here to add properties? Go to your bank and ask for a commercial banker. See what kind of deal they can give you on a purchase. Commercial loan typically require 20-25% down, so decide if you have that available. If so, then purchase your next property with a commercial loan.

If you don't have the cash but can spare the current cash flow, then a line of credit is a good idea. I like LOC because it costs little to get it set up and it waits for you to find a deal. With your current loans, you might even be able to get a HELOC (home equity line of credit), which has a lower interest rate than a business line of credit.

A refinance is also possible, but you better have a deal ready or you will be paying interest on money that just sits in the bank making very little.