Selling current rental property to buy 2 rentals

Riverside, California
Buying & Selling Real Estate
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Selling current rental property to buy 2 rentals

Rich Chen
Homeowner · Burbank, CA · Member since 2020 · 24 posts · 5 votes

We own a rental property that was our previous starter home. The condo was purchased around 450k and it has been paid off. The home is now valued at around 700-800k. It is currently generates $3k monthly.

We're looking into either get a HELOC or sell the condo to purchase 2 rentals in cheaper areas. Still doing research on rental areas.

I'm not really familiar with how all of this works but feel like I'm sitting on enough money to get more out of what we have, instead of building our wealth. I appreciate any guidance.

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
1y

By less expensive area, I'm guessing you mean the cost of housing in that area is lower, not buying a house in a rougher area (the latter is not a good idea).

Start by talking to your bank to find out how much you are qualified to get for a mortgage. then start looking for homes in that price range. You could look for duplexes which have the advantage of two units under one roof. Be careful if you buy in an area with a HOA.

Also know if you've not lived in the house recently, you will have to pay capital gains on the profit.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    1y

    By less expensive area, I'm guessing you mean the cost of housing in that area is lower, not buying a house in a rougher area (the latter is not a good idea).

    Start by talking to your bank to find out how much you are qualified to get for a mortgage. then start looking for homes in that price range. You could look for duplexes which have the advantage of two units under one roof. Be careful if you buy in an area with a HOA.

    Also know if you've not lived in the house recently, you will have to pay capital gains on the profit.

    2Reply
  • Scott JohnsonBusiness Member
    Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
    1y

    HELOCs calculate interest per diem and their rates tend to be in a "range" that's affected by the market (i.e. you have little to no control over how much you pay them over time). An actual mortgage locks in payments for a period of time so that they don't change, and you can fully anticipate with pinpoint accuracy what the payoff will be at any given time using an amortization schedule. Also, it's a heck of a lot cleaner on paper since you can use they amortization schedule to calculate the interest paid each year easily in order to write it off.

    That is to say, "What's stopping You from just refinancing it"? You can fina. Lender that'll roll with different durations (10, 15, 29 years, etc...) so you choose what works best for you.

    [email protected]
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  • Rich Chen
    OP
    Homeowner · Burbank, CA · Member since 2020 · 24 posts · 5 votes
    1y

    So it sounds like selling the current rental property isn't recommended, and refinancing might be the better option. Given the high interest rates, though, is it still a good idea to take loan from the bank?

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    • Scott JohnsonBusiness Member
      Specialist · Greenville, NC · Member since 2019 · 673 posts · 408 votes
      1y

      @Rich Chen just seeing this. That's completely up to you. Run the numbers by calculating out what your payment would be at the current interest rate. Asking us our opinion as to whether or not it's a good idea. It's just that, in opinion. Cold hard numbers are the best truth teller.

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  • Rich Chen
    OP
    Homeowner · Burbank, CA · Member since 2020 · 24 posts · 5 votes
    1y

    Thanks, I'll look into doing a 1031 exchange. It seems like a better approach than selling outright since it offers deferred tax benefits.

    What tools do people use to research rental markets? I want to analyze things like job growth, vacancy rates, and population trends. Is Zillow sufficient, or are there better options?

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    • Caleb Brown
      Real Estate Agent · Kansas City · Member since 2018 · 5k+ posts · 3k+ votes
      1y
      Quote from @Rich Chen:

      Thanks, I'll look into doing a 1031 exchange. It seems like a better approach than selling outright since it offers deferred tax benefits.

      What tools do people use to research rental markets? I want to analyze things like job growth, vacancy rates, and population trends. Is Zillow sufficient, or are there better options?


      I have used Grok AI to do deep research on topics and go deeper from there. There are a million different markets out there. Midwest is a super common area for people to look into. You are in CA so you can look at neighboring states to see where those are at. Once you do research I would start connecting with people in those areas to get a better feel

      1Reply
  • Jared Smith
    Real Estate Agent · Lakeland, TN · Member since 2015 · 214 posts · 105 votes
    1y

    @Rich Chen you can have your cake and eat it to! You can do a cash out refi on your existing property for an amount that will leave you with some cashflow and will allow you start the cycle of having someone else pay for your home loan again, then take that money and invest it in something else, other properties perhaps. This will allow you to grow your portfolio base and not be over leveraged, but still taking advantage of appreciation and some cashflow. If you can manage to have roughly the same amount of passive income, but have significantly more assets under management, it will significantly increase your long-term wealth! 

    Happy to answer any questions on this comment.

    0Reply
  • Steve WoltermanBusiness Member
    Attorney / Qualified Intermediary · Cincinnati, OH · Member since 2022 · 49 posts · 26 votes
    1y

    Hey @Rich Chen A HELOC could be a good idea if you would like to hold onto this property. If you have rented this property out for at least 12 months and want to get out of this property and buy multiple properties or one large building a 1031 exchange could be another good option.

    1031 Federal Exchange
    WebsiteView Page
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  • Kerlous TadresBusiness Member
    Realtor · Columbus, OH · Member since 2023 · 1k+ posts · 1k+ votes
    1y

    Hey Rich, 

    If you want to keep the condo for a steady rental income, a HELOC is a good option. It lets you tap into your condo's equity to fund more properties without selling. However, you'll have a line of credit to manage and risk if the market changes.

    If you're looking for more growth, selling the condo and using the profits to buy two cheaper rental properties could give you higher cash flow and diversification.

    [email protected]614-490-1163
    Kerlous Tadres | Reafco Real Estate542 Reviews
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    1Reply
  • Melissa JusticeBusiness Member
    Rental Property Investor · Phoenix, AZ · Member since 2024 · 519 posts · 1k+ votes
    1y

    @Rich Chen,

    You’re in a fantastic position with a paid-off property in a high-equity market, you have a lot of leverage to start building wealth more efficiently.

    Options that would work --
    Option 1: HELOC (Home Equity Line of Credit)
    You could tap into $400K–$600K of your equity without selling.

    This allows you to keep the $3K/month cash flow and use that equity to buy 2–4 cash-flowing rentals in more affordable markets (think Midwest or Southeast).

    HELOCs are flexible, interest-only at first, and you only pay on what you use.

    Combine a HELOC with turnkey rental properties that are already renovated, tenanted, and managed by professionals—so you can keep things passive and simple as you scale.

    Pros: Keep your current income, leverage your equity, and build a portfolio
    Cons: You are taking on debt, so there’s risk if your new investments don’t cash flow as expected

    Option 2: Sell the Condo
    If you sell and net ~$600K after fees and taxes, you can do a 1031 exchange to defer capital gains.

    With that, you could buy 4–6 properties outright or with financing, depending on your comfort level.

    Focus on landlord-friendly, cash-flow-heavy markets like:
    Indianapolis, IN
    Birmingham, AL
    Cleveland, OH
    Ocala, FL
    Columbia, SC

    Pros: Maximize cash flow potential, diversify across markets
    Cons: Lose current $3K/month, and selling triggers decisions about capital gains unless you 1031

    If you’re just starting out and want to keep things simple, turnkey rentals in the Midwest and Southeast are a great place to begin. These markets offer solid returns, professional management, and less stress-perfect if you're not looking to be a hands-on landlord.

    You're absolutely right-your equity could be working much harder for you. Whether through a HELOC or a 1031 sale, the key is putting that capital to work in appreciating, cash-flowing assets.

    Happy to help you explore example markets or strategies!

    Best of luck,

    Melissa

    [email protected]313-221-8718
    1Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    1y

    @Rich Chen, You could do what's called a diversification exchange and use all of the tax and depreciation recapture you would normally pay and reinvest it into multiple investment properties, just like you're thinking to do. This method is often used when investors want to tap into markets in different areas or even states to diversify their portfolio, and increase their cash flow and appreciation potential.

    The reason for the 1031 over a refi usually comes down to being able to access all of the equity to purchase your new properties. There's nothing wrong at all with refinancing that property, but make sure that the refinance doesn't dilute that property's performance too much. And make sure that 70-75% of the equity from that property will still get you multiple properties in the markets you end up deciding on.

    The 1031 Investor5140 Reviews
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    1Reply
    • Rich Chen
      OP
      Homeowner · Burbank, CA · Member since 2020 · 24 posts · 5 votes
      1y

      @Dave Foster thanks sounds like 1031 is the way to go as we could retain more investment capital.  Will research more on that.  

      0Reply
  • Davaris Bennett
    Member since 2022 · 18 posts · 6 votes
    1y

    Do you buy in North Carolina?

    0Reply
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