what should I do ??? any advice

35 Replies

Hey, BP I'm officially 1 year in this business and thanks too you guys for all the help during my process. I already kinda got my mind made up but I just wonder you guys thoughts on my circumstances.

I have a duplex that is free and clear which I am house hacking. On the other hand I have about 140k sitting in the bank. I'm super blessed to be in this position. Initially, I figured ill refi my duplex and at that point ill be at roughly 225k in total capital. Should I take this route and dump the 225k into another Muti family and refi or should I keep the duplex free and use the 140k too buy a town house or single family ? After then refi both to scale ? I might sound confusing but I'm just wondering what you guys thoughts were ? Thanks

I'm not an expert, but I wanted to keep your thread alive, so I thought I'd chime in.  But remember, opinions are like...well, anyway.  lol 

I'm a big proponent of having one place free and clear!  That way, if all else goes badly in the world, at least you have a place to live!  It's better to be broke than broke AND homeless.  I think you should never put another person's dime on your duplex...unless you end up buying something else and have it free and clear later, then you can at that time.  ;-) 

That being said, I vote for a SFH. It's just my opinion and many people do well with town homes, but for me, I don't like the idea that it increases some of my risks. If their place catches on fire, mine probably will, too. If they are gross and have tons of roaches, my place probably will, too.

I think you should keep the duplex as is and buy a SFH. :-D Then again, if you know anyone good at the stock market, consider putting some in that for a bit of diversification. I have about 1/3 of my money in property and the rest in stocks and bonds, though I'm looking to make it more half and half. :-)

Good luck with whatever you decide!  But, after this thread is dead, I'd love to know what you plan to do.  :-)

@Jody Schnurrenberger Awesome, thank you of the feedback. Opinions are just opinions lol....

Free and clear is always safer. I was thinking buying cash initially and keep refinancing until I reach my max of 10 properties through loans. At the last refi I can cash put of course and use the cash to buy my primary residence and keep my home free and clear. Also if I buy right throughout the process. I would love to have a primary free and clear at 250k-300k. sounds like a plan to me. I just need to figure out how to buy properly.

Yes, buying right is DEFINITELY the tricky part.  Hahaha

If I were in your shoes where I live, I would take $70k of your money in the bank and put 50% down payments on two $70k, nice, cash-flowing duplexes, along with 10 year mortgages for the remaining $35k each.  Deploy that money to make you money on a monthly basis while your tenants also pay down the small remaining mortgages, and then have them owned free and clear in 10 years. Then once you have that up and running and are comfortable, consider refi'ing the duplex you have now and invest that into another property.  

Good luck - sounds like you are off to a great start!!

@Isiah Ferguson , It's counter intuitive and the leverage freaks will start flying around the room at this suggestion.  But my recommendation would be to keep the property you live in free and clear.  You've worked long and hard to get where you are and right now there's almost nothing that can cost you that home.  Then go and leverage whatever you want however you want.  Use this to stretch knowing that at your back you've got the asset you can't lose.  

We have clients all the time now moving property with 1031 exchanges and buying some free and clear and using the rest of the proceeds to purchase with leverage.  In their minds it's defensive against a correction in the market.  But it still gives you an element aggressiveness so you can maximize returns.

I know that leverage on your primary is the cheapest money but your primary has other benefits as homestead that again can protect you if something bad happens.

Medium ergDave Foster, Exchange Resource Group | [email protected] | 850.889.1031 | http://www.erg1031.com

@Erin K. Sounds like a pretty good plan. I will definitely think this through.

@Dave Foster I believe you can never go wrong with your intuition. I think I will stick with that. I will leverage my business portfolio and keep my primary at the end free and clear at the end of building my portfolio. My duplex is part of my business. 

I understand which way you're leaning and I accept that (as a leverage freak). However, please at least open a HELOC. There is nothing like having equity or access to it when you want it.

@Kristina Heimstaedt I understand. I want to use cash and refi to leverage my business. Have my SFH for my family and I free and clear with a HELOC in place.

Buying free and clear is the safest approach, also the most conservative and a poor use of money. Your return is extremely low and could be improved by putting your cash in a income fund rather than real estate.

With a opportunity value of 10% your equity is sucking about $800/month off the top of your rental income. Your duplex as a result most likely has negative cash flow.

@Thomas S. free and clear is never really real cash flow. That's why I want my rentals leveraged and primary free. 

I would by a small apartment complex using the cash as down payment.  I wouldn't touch the duplex equity unless there was a screaming deal. 

I am currently saving for my next down payment too.

Loving Charlotte by the way.

I would buy another nice duplex with 20% down and move into it. I would rent out your current residence. This will give you three rentals and your primary residence.

Then I would take your remaining funds and buy a couple more duplexes, triplexes, or four-plexes. I would retain a healthy reserve account to cover vacancies and major repairs.

Medium copy of logo 03 aw sqr clrNathan G., American West Realty & Management | [email protected] | (307) 587‑9608 | http://www.rentcody.com | WY Agent # 12499

@Nathan G. I think I would have the upper hand with cash purchases each time instead of putting 20% down. 

@Isiah Ferguson , great situation to be in but there's no right answer to your question because it all depends on YOUR risk tolerance.

That being said it's better not to be on both extremes: too conservative ( paying down a property aggressively to own it free and clear before moving to the next one) or too aggressive ( leveraging every single property to the max). Most people fall somewhere in the middle and I suspect by your comments that you do too.

If I were in your position, my first move would be either:

1) get a HELOC on the primary residence. The HELOC fees for a primary residence are only a few hundreds at most. YOU DO NOT HAVE TO USE THAT MONEY NOW OR EVER. And as long as you do not use it, there are no fees and no payments to be made. You can consider this as a real emergency fund! Then I would invest about $100k out of the $140K into 1 or 2 cash flowing properties depending on how much they cost in your area. That $100k should cover acquisition ( down payment) and repairs to have the place ready to rent. This means that you will have a mortgage on the 1 or 2 new properties. An extra bonus of the HELOC with $0 balance is that it should boost your credit score because a HELOC is listed as a revolving account and looks like a credit card account on your credit report. Off course, that's only if you carry balances on your credit cards. If you payoff the card balances every month, then there wont be that much impact since your revolving credit usage is already close to $0.

2) buy a new primary residence ( $100k max for deposit and repairs) and move out of the duplex. You can get a lower interest rate and it's much easier to obtain a mortgage for a primary residence. And if it's a HUD home, owner occupants usually have about 15 days to bid before investors are allowed to which is also an advantage.

But if properties are much cheaper in your area, stay put at your primary and buy another rental with your own cash and when it's up and running you can then look at leveraging the 2nd rental and still keep you primary free and clear. It's all about your risk tolerance leve!  You got where you are today with sound judgement so I'm sure you will make the right decision this time too! 

@Isiah Ferguson, please keep us updated as to what you decide.  having a large amount of equity in my current home, my internal debate is similar as i move forward as well. 

918‑284‑7555

I will stick to my gut feeling. Refi my duplex at 70% and at this point I should have roughly 225k capital. I will purchase another multi family property for cash. Move out the duplex and put a tenant in the unit I'm in now. For my new property I will live in 1 side and rent the others. Soon as I can I will refi the new property, take my cash back and purchase a new property so on and so fourth. Once I max out 10 loans then ill refi my 10th rental property and take my cash back to purchase my primary. in this senses my portfolio would be leveraged and my primary will be free and clear with access to a HELOC from my primary. @Derek Wallace @Victor N.

Originally posted by @Isiah Ferguson :

I will stick to my gut feeling. Refi my duplex at 70% and at this point I should have roughly 225k capital. I will purchase another multi family property for cash. Move out the duplex and put a tenant in the unit I'm in now. For my new property I will live in 1 side and rent the others. Soon as I can I will refi the new property, take my cash back and purchase a new property so on and so fourth. Once I max out 10 loans then ill refi my 10th rental property and take my cash back to purchase my primary. in this senses my portfolio would be leveraged and my primary will be free and clear with access to a HELOC from my primary. @Derek Wallace @Victor N.

Well done so far, Isaiah!  Did you say you've only been doing this for 1 year? Outstanding!

I agree with having some free and clear properties (over half of my portfolio is paid off), but I paid off higher rate and higher risk mortgages specifically, not primary res financing.  But you are in an awesome position and I like your plan going forward.

I would just add to keep taxes in mind with your current primary.  If you have a significant capital gain, be sure to sell before the 3 yr mark of renting out to take advantage of sec 121 gain exclusion.  Cheers and congrats to you!

There was just a great thread about this topic that made a good point that stuck with me...

If you own a property free and clear, you are effectively making 4% or whatever the current mortgage rate is. Simply because you aren't paying that interest on your cash/equity. 

Beats a savings account for sure. But if you compare it to other properties that can net you 5%+ AND build equity then it's going to be a better use for your money. That's from a purely objective standpoint. 

The comfort factor and higher cash flow on your current property is worth something, but leverage will ultimately build more long-term wealth. 

I think you're making the right call!

Originally posted by @Ryan Evans :

There was just a great thread about this topic that made a good point that stuck with me...

If you own a property free and clear, you are effectively making 4% or whatever the current mortgage rate is. Simply because you aren't paying that interest on your cash/equity. 

Beats a savings account for sure. But if you compare it to other properties that can net you 5%+ AND build equity then it's going to be a better use for your money. That's from a purely objective standpoint. 

The comfort factor and higher cash flow on your current property is worth something, but leverage will ultimately build more long-term wealth. 

I think you're making the right call!

 Thank you for the feedback. I mention a few things. You think I'm making the right call specifically doing ?

@Jody Schnurrenberger

Just a note on having a property free and Clear. In the event of a mortgage default and an eventual bankruptcy. The bankruptcy trustees will make you sell ALL your property to pay any debts. Even free and clear property.

I believe you are only allowed to keep $30k in equity in your residency only. The rest gets sold off.

I only know this because I purchased a portfolio from a bankruptcy trustee more then 18 of the 25 properties were free and clear but the debt was still much higher.

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