Use Equity to buy or sell and use cash

6 Replies

Hello, I’m a long term investor / lover of RE. I’ve completely rehabbed multiple primary residences trading up each time. (I’m shocked my wife has not divorced me yet.. ). We’ve also acquired a three 3 family houses and used the cashflow to pay for a second home all while working my full time day job for the last 18 years. I’m at a point in my career where I have come to the conclusion that I want to go further into real estate and gradually move away from my day job. I’m looking to move into larger multi family properties with the goal to initially replace my W-2., build passive income and equity to teach my kids the value of. We have decent equity in the investment properties and wanted to ask whether it would make more sense to sell all 3 and 1031 into a 10-20 unit or keep them and take out a home equity line for the down payment? Thanks, David

Welcome! That is the exact situation I am in right now. I have 3 good SFH cash flowing properties with tons of equity. It's a tough call. I see pros & cons for both routes.

My concern would be getting quality property management for that 10-20 unit.  You could of course simply be an equity partner in someone else's deal and just connect with one of the syndicators on here- then you would be truly passive.  Tough to answer that question... I guess it's whatever works for you.

Thanks Chris, are you suggesting10-20 is too small to get decent property management focus and therefore be a larger version of the headache of 3 small multis’s? Is it wiser to find partners and go for something bigger 30-60 - above?

For the 1031x thoughts you need to talk to your accountant; main question is are your current properties in a 1031 that would make it easy. As for the PM issue as long as you screen really well and pay attention to basic maintenance 10-20 will be easier than your current 3x3 buildings provided you do not pick a dog for the 10-20! You will be pleasantly surprised at the difference of having your tenants all in one place. 

If you have dead equity you can access and still have positive cash flow properties there is no reason you should sell, unless they are SFHs. SFHs, not being purpose built rentals, can easily be sold without any negative consequences. Their prices are home owner driven not business. I would sell any SFHs just in case the markets do turn and you lose your equity.

Money sitting dead in a SFH is always at very high risk.

Personally, I would sell the SF homes. SF is much more sensitive to vacancy risk and CapEx expenditures. Opportunities for economies of scale do not exist (unless you have a large portfolio of homes in a close proximity). All that said, the biggest thing for me is that you are basically "held hostage" by one tenant (or family).