So we are in a rather good situation but would love to improve it by getting more revenue streams from rental properties. Our situation is that we purchased a condo at the height of the recession for 224,000 and it has appreciated to more then double that. We currently rent it for a positive cash flow of 1100 dollars over the mortgage(and all other expenses). So a year ago we took a Home Equity loan and purchased a house for 525,000 that has now appreciated in a year to 660,000(as of our refi and last appraisal). We would love to invest in either a duplex or triplex but struggle with the best method to make it happen. If we sold the condo we would have close to 300,000 in equity but would lose a positive cash flow. Selling the house would get us much less equity to work with but the house probably couldn't be rented for a positive cash flow YET. So thirdly would be somehow branching into another property without selling either, but that may be risky and impossible with standard loans. Any suggestions would be really appreciated. We are new at this and have a young family that is growing out of the current house. Thank You, Demian-
@Demian Sims Congratulations on doing so well and putting yourself in this position! And good on you for asking for advice.
Here are my thoughts and I hope it helps:
I'm a believer in looking at your personal residence differently than your investments. Everyone needs a place to live and everyone's circumstances are different in what risks they can take and what living conditions they're willing to tolerate. I have a wife and three kids and we live in a nice place in a nice neighborhood. We're not planning to leverage the house and we'll make steady progress to pay down the loan until it's paid off. The thought of getting a HELOC or doing anything to put our house at risk is not even on the table.
So, in your situation, you're right to be concerned about taking on too much risk. If the market changes for the worse, are you prepared to lose your primary residence and move into somebody else's rental? I know my answer. When I was younger and before family, I could've and should've taken more risks. Not now.
If you're outgrowing your existing home, are there plexes available in your area that will give you more room? Typically, the SFR will have way more room than one unit in a plex unless you find the ones that have the attached owner's unit that is a lot bigger. For example, in my area, you can find fourplexes that have a breakdown of a 3/2 owner's unit, two 2/1's and a 1/1. Please give some details on what kind of a plex you had in mind.
A lot of people on BP will tell you that California RE doesn't have the good returns like a lot of out of state areas. How much are you renting your condo for?
From the info you've shared, I would not do option 3 for sure. I would keep your condo as it is and maybe consider selling it and investing the proceeds somewhere else if you can get a better return than you're currently getting. Sell your current home and move into a plex that suits your space requirements. If you can, go for a plex that costs less than your current home. It might mean you'll be farther away and in a less desirable neighborhood but this will maximize your growth potential. Good luck!
@Demian Sims - What are your thoughts on doing this with little to nothing down and just controlling vs owning the duplex?
it depends on a lot of factors, including your goals, their timeframe, etc. If you are in a growth stage it makes sense to leverage to the max while maintaining reserves and safety nets.
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