What's my next step?

Question

I'm looking for some advice as to which direction makes the most sense going forward. I have three SF properties; one I live in and two that are rented. One of my rentals I have owned since 2001. I only owe approximately $50,000 on it and current market value is around $150,000-$160,000. My question is "Do I refinance and buy two more SF or small MF properties, which essentially lowers my cash flow on that property?" "Do I sell it and use the money to buy a small apartment building?" Or "Do I pay off that property quickly, move into it, and live for free?"

Any advice would be greatly appreciated!

Bryan Noth · Answer

@Veronica Powers it depends entirely on your investment strategy and goals.  If you are looking to maximize cash flow without acquiring more assets, then paying off a property first is probably the best route.

If you are considering purchasing more SF or MF I would suggest looking at your return on equity.  Per your example, you have $100k in equity and let us suppose you cash flow $300 a month after expenses.  Extrapolating those numbers we see $300 monthly add up to $3600 annually.  But you have $100,000 of your potential dollars in this investment paying you $3600 a year.  Easy math shows us that is a 3.6% return on your money.  Look at what your actual returns are against current market cap rates to see how much potential returns you could realize.  Not to mention cumulative appreciation.  Supposing a  SF home appreciates 3% a year, your $150k home could be worth $154,500 in 12 months, increasing your equity by $4,500.  If you purchased 2 SF properties both worth $150k, your equity position doubles in the first year.  $154,500 x 2, increasing equity to $9,000.  Run the math on compounded interest and that option looks monumental.  This is of course simplified math but it is meant to open that thought door to exploring your options.  Always best to take action on what fits your preferences and comforts best!