What would you do with 150k

Question

Had a client who wants to get into investment properties pose this question and I wanted to get other's opinions.

Here's the situation:

Client has a rental that they owe 150k on.  They have the means to pay it off and still have a little money in the bank.  The property is worth 350k.

Here's the question:

Would you take the 150k and pay off the note to secure a HELOC worth $262,500 (75%) OR would you take the 150k and simply invest it into other properties?

Theresa Harris · Answer

@Tye Scott  If they are looking at growing their rental portfolio, they should take that money and use it as a down payment on one or two other properties.  Why on earth would they pay off their $150K balance and then take out a HELOC?

Dennis Cosgrave · Answer

Definitely take the $150k and invest in other properties. The only caveat is to keep enough cash in reserve to cover 6 months of expenses.

Dennis M. · Answer

Don’t pay off squat ! That’s the tenants job !

Caleb Heimsoth · Answer

@Tye Scott i would not pay the property off and I wouldn’t take a heloc.  I would take the 150k and lend it to people at 12 percent or more interest on a short term basis

Theresa Harris · Answer

$150K is a lot of money.  I'd start with that.  If they want to  refinance the home, they can do that without paying the $150K.  It doesn't make sense to pay it off and then pull it out again; just refinance and pull out the 'extra' $100K.

Brian Garlington · Answer

Pull cash out and buy more properties

Tye S. · Answer

@Theresa Harris My assumption is that by paying off their mortgage they will have access to a larger amount of money which could potentially buy them more BRRRR properties.

Tye S. · Answer

@Bill F.  Client is 30 with a 100k+ annual income and looking to grow a rental portfolio or fix n flip if that makes more sense on a particular home.

Bill F. · Answer

@Tye Scott

There isn't enough info to give any actionable  advice.

What are your clients goals, time horizons, risk limitations?

There is a big difference between a 40 yo investing for the next 30 yrs or a 65 yo who wants to retire 2-3 years.

I do know that unless they have significant sources of cash flow from other means paying off a fix rate note and replacing it with a HELOC is not a good idea.

Tye S. · Answer

@Caleb Heimsoth Thank you - hadn't thought of that.  I will mention it as an option.

What would you do with 150k

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