How to turn equity into more homes?

Question

I currently have a SFR rental in Los Angeles area which breaks even. It has a $150,000 in equity. The home I live in has $100,000 in equity in the same city. I would like to turn that equity into multiple rentals or use the equity to flip homes. Would selling the rental and use profit to buy multiple make sense?

Erik W. · Answer

.@Nicholas Sander, okay good.  Your goal is set.

Now it's time to look at what strategies will you use to achieve that.  Are you looking in markets that produce a better Cash on Cash returns?  Do you plan to step down from whatever class of unit you're in to trade appreciation for cash flow (Class A to B, or B to C)?  Will you use more cash and less leverage, thereby decreasing / eliminating your loan payment and putting that part of the cash flow into your pocket?  Are you going to shop distressed properties and fix them up to an acceptable level, or are you looking for turn-key places you can rent the day after closing?

There are many ways to achieve your goal.  The optimal method for using your sale profits will become more apparent once you have a strategy in mind.

Erik W. · Answer

@Nicholas Sander, I think the first question is how do you plan to do better if you do buy more property?

You presently have a rental that only breaks even.  I do not know your level of experience, but I am guessing based on your post you're pretty new to the game and/or have only this one property.  Is your goal to buy cash flowing properties or to turn one break-even property into 2 or 3 break-even properties?

I know some investors do nothing but chase appreciation.  Alright, that's fine if that's your plan.  But appreciation doesn't pay the bills.  Equity gained from loan amortization doesn't pay the bills.  One $10,000 roof replacement turns a break-even property into an alligator that you must feed or it will eat you alive.  It can also be very discouraging if you find out 3-4 years down the road that you bought in an area that never appreciates or was at the top of the market when you bought and values are stagnant or falling.

I'm a cash flow seeker.  Cash flow puts $$$ in my pocket today that I can spend today.  Equity is icing on the cake.

What's your goal for wanting more property?

Nicholas Sander · Answer

I would love to get multiple  cash flow properties.

Kerry Baird · Answer

The property that breaks even and has $150k of equity would likely not work if you refinanced and pulled cash out.

If you sold, it would very likely allow you to buy several other houses, in the right market.  Look at the properties that I (hopefully) linked to below.

Refinance the house you live in if it makes sense to do so.  Set aside half of the money for holding costs, repairs, capital expenditures.  It would be possible to set aside half to buy a rental or two, depending on the market.

You could very much build a cash flowing property portfolio in a market such as St Louis or Memphis. Look at houses in those markets and see what kind of investment you’d need, vs the cash flow you might expect.

Disclaimer: I have not bought properties from either of these companies, I have attended Jason Hartman’s Orlando property tour.

Mid South

JH Memphis

Seth Ferguson · Answer

It all depends on your goals. If you're looking for cashflow, then you could sell and purchase a number of properties in a less expensive cash-flow type market. Think hard about where you want your real estate portfolio to be in 10 years, and make decisions based on that.

How to turn equity into more homes?

Most Popular Reply