what to do with 100% equity in a rental property

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what to do with 100% equity in a rental property

Joseph Vu
Member since 2020 · 32 posts · 18 votes

Hey all, I currently have a rental property that is currently paid off, with about 650k worth of equity. I hate to have all of this equity just sit here doing nothing, so what kind of strategies would you guys take to make use of the equity? Should I try to get a HELOC or an equity loan?

I would love to purchase more turnkey properties, but it has been extremely difficult to purchase any due to low inventory. This has been common with multiple turnkey companies.

I was thinking of scouring the MLS for properties and renovating them myself, but the thought of trying to manage this out of state would be extremely stressful.

This leads me to trying to flip properties locally. I am from the Bay Area, Ca, so the market here is quite different. What do you guys suggest I do?

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Jon KellyPro Member
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
5y

@Joseph Vu either (1) take advantage of the seller's market we're in and sell, or (2) cash out refinance and pull-out 75% of $450k+ of equity. Use the cash from either scenario and buy a $2M multi-family property

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  • Joseph Vu
    OP
    Member since 2020 · 32 posts · 18 votes
    5y

    I am curious to see how people used their equity to purchase more property, because it is still borrowed money, but typically at a higher rate than a conventional loan, so I would think it would be hard to remain cash flow positive.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    Take some of the equity out and use that as a down payment. Make sure you know how much you can borrow for a mortgage on your new rental.  I wouldn't go with a turnkey property company.  Buy a house yourself and find a good property manager to take care of it for you.

    2Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    5y

    See how you can use it to fit your long term goals.

    0Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    5y

    HELOC is a Home equity line, so per definition you have to live there for the property to quality. But you can get a conventional 30 year fixed mortgage for 75% of the appraised value. Also much better rate. This is called a cash out refi, even though you are not refinancing, you are just financing.

    I would not go turn key either, just eats into your margin.

    2Reply
  • Aj Parikh
    Rental Property Investor · Centreville, VA · Member since 2019 · 1k+ posts · 799 votes
    5y

    I would get a HELOC and buy 5-6 turnkey properties all cash. You can negotiate a better deal if you plan to buy multiple turnkeys from a provider and you will be buying them cash so having a HELOC helps. Good luck!!

    1Reply
  • Jon KellyPro Member
    Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
    5y

    @Joseph Vu either (1) take advantage of the seller's market we're in and sell, or (2) cash out refinance and pull-out 75% of $450k+ of equity. Use the cash from either scenario and buy a $2M multi-family property

    7Reply
  • Jason Shackleton
    Investor · Ontario · Member since 2015 · 486 posts · 250 votes
    5y

    Hi @Joseph Vu I would simply do a cash out refi on your rental property. Then use these funds to do whatever type of investing you would like to do. It sounds like you really need to narrow that down and pick a strategy and formulate a plan. The reason one does a cash out refi is to get a higher ROI on the next deal then they are getting with the current one. Investors generally move very quickly on a deal once they have the money ready to go. You will be paying interest on this new money on day one so you are going to want to have a place to invest that money right away.

    Good Luck!

    2Reply
  • Benjamin AakerPro Member
    Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    I'd like to first congratulate you on having 650k equity in a property! You are far ahead of most but you probably see that 650k as being held stagnant in the property. It's like a mature tree you have grown. You can take a lot of that and put it to good use elsewhere. It's a seller's market and selling it is tempting, but this thing is cash-flowing right now. If you could finance it (as long as it will still cash flow) you can put it into any number of new opportunities and plant many more trees. I recommend the refi.

    0Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @Joseph Vu I would not go Turnkey, and would do a loan 75% LTV and make sure the cashflow is great. That would put you at about $480K to use for purchases, and then take that cash to whatever investment class you want to use it for while making sure all the numbers work.

    If you want to stay within the state of CA you'll have to look outside of the Bay (Auburn, Sacramento etc.), or you could go out of state to hit a bigger unit number with that type of cash. Either way, you should use the cash that is in the house because in other strategies you could be getting a larger return on your money with way more doors. 

    The McKernan Group4.957 Reviews
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  • Justin Phillips
    Lender · Phoenix, AZ · Member since 2018 · 440 posts · 256 votes
    5y

    As far as the financing side, I'd definitely recommend a Heloc. You can set those on rental properties no problem. The nice thing about a heloc vs cash-out, is you're only paying for the money that you use. So you're not committing to 30 years of mortgage payments on day 1. Now is a great time to open a heloc, because the market/values are so high. 
    My wife and I set-up a first position Heloc on our rental, and we love it. We're able to put idle funds to work, while we're waiting for the market to start offering more attractive deals. When a deal comes up, we'll simply write a check from our line and purchase in cash. 

    0Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    5y

    @Joseph Vu Like the 2009 rap video says "Rich Boy - Throw Some D's" you have to put some debt on that (while cashflowing) to get your return on equity. Having paid off properties is one of the biggest mistake those under 3M net worth make.

    1Reply
  • Kyle Perez
    Los Angeles, CA · Member since 2018 · 4 posts · 1 vote
    5y

    @Lane Kawaoka that’s game. If you could extrapolate on why those with net worth under $3MM make that mistake with having paid off properties it would be helpful to the topic and conversation I believe.

    1Reply
  • Ben Grubb
    Rental Property Investor · Denver, CO · Member since 2021 · 22 posts · 11 votes
    5y

    @Joseph Vu $650K gives you $2.5M in assets to work with. That's how leverage works. $2.5M should push off $65-90K in cash flow and appreciate $50-100K per year - not even including the debt paydown. Get the money out and buy something bigger and better. I think you gotta think bigger than turnkey at this point. Maybe multifamily, maybe a condo community. What's about buying notes that give a 10% dividend with some of the cash. Lots of ways to make that money work.

    1Reply
  • Paula Kothmann
    Member since 2021 · 2 posts · 3 votes
    5y

    Yes, I'd like to learn about the mistakes of people with no mortgage worth over $3M in equity. I live off my rents. Many thanks! 

    1Reply
  • John Putze
    Orlando, FL · Member since 2020 · 5 posts · 0 votes
    5y

    @Joseph Vu I'm just a novice here, but if I had that opportunity, I would sell and 1031 into a multi family.

    0Reply
  • Anthony KingPro Member
    Investor · Charlotte, NC · Member since 2020 · 239 posts · 247 votes
    5y

    @Joseph Vu what is your return on equity? Without knowing your numbers I would bet you'd be much better off selling and reinvesting that money.

    https://wealthynickel.com/return-on-equity-real-estate/

    0Reply
  • Dennis Pressey Jr
    Specialist · Philadelphia, PA · Member since 2014 · 231 posts · 69 votes
    5y

    @Joseph Vu

    Finance it out at a rate that cash flows and go get 2 more.

    1Reply
  • Tucker Cummings
    Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes
    5y

    Another option is to start looking for an apartment building to buy. Once identified, sell your house and 1031 exchange into the apartment

    0Reply
  • Paula Kothmann
    Member since 2021 · 2 posts · 3 votes
    5y

    Thanks for the tips. I sold my debt-free rental property in Austin, TX, bc the ROE was bad due to astronomical appreciation Nov 2020. I ended up gaining $3k/month appreciation plus $1900 rent on a $225K cash investment for 7 years ($5-6K ad valorem tax annually). I sold for $475K. To avoid capital gains I bought a historic home in a much nicer neighborhood in San Antonio. No boot. I plan to restore it and apply for a tax rebate. Who else invests in prestigious historic districts with $1MM homes? Property taxes in Texas are super high so I'm always looking for ways to reduce state or federal taxes. I really don't trust the stock market and I live off my rents.

    2Reply
  • Frank Hopkins
    Real Estate Agent · Orlando, FL · Member since 2019 · 10 posts · 4 votes
    5y

    Good morning,

    I flip, buy and hold or list properties in and around Orlando. I have done the out of state rehab and I would not recommend it unless you have a local team. And even then there would be a vetting process. Which turnkey providers have you worked with? I know of some that are really good. It also depends on your long term goals. What are you trying to accomplish in your real estate investing? 

    0Reply
  • Darius Ogloza
    Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
    5y

    Getting a HELOC - not easy with a rental company - is a no brainer if you can find a bank willing to lend. I know East West lends on rentals in some parts of the Bay Area. There are others, I am sure, but it may take some digging.

    The Bay Area is and has been in the best flip environment I have seen in the last 20+ years.  If you are new to flipping, I would not recommend you going alone.  Find a group you trust, invest some cash and watch carefully how the process unfolds.  

    1Reply
  • Christie Duffy
    Real Estate Agent · North Jersey · Member since 2016 · 76 posts · 29 votes
    5y

    @Joseph Vu is there a market outside the Bay Area but driving distance where the price point is more accessible but you can self manage? I would do heloc. You could also buy something turnkey but personally I don’t.

    1Reply
  • Mike A.
    Port Chester, NY · Member since 2016 · 210 posts · 157 votes
    5y

    I'd sit tight and wait for a good deal to come over the next few weeks and months. You can then walk in with an all cash offer with quick close. Don't jump too fast here.

    1Reply
  • Matthew Jordan
    Investor · Austin, TX · Member since 2019 · 34 posts · 21 votes
    5y

    @Joseph Vu you could refi this property at low leverage (say 50%) on a non-qm loan and get a rate in the 4% range. If you are borrowing funds at 4% and are able to achieve 7-10% in the stock market or buying other properties it's worth it. 

    0Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    That's a good problem to have :-)   However.....there are no "flippers" in the real estate hall of fame. 

    We just helped a couple of people earlier this year in the same situation. One sold the property and used the cash to buy where she can get some serious cashflow in Alabama.

    The other is a couple that put a renter in there....and got a HELOC and used the cash from that to start buying in Ohio.

    0Reply
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