What should I do, increase rentals or sell for down payment

Question

I have 2 rental properties with equity over 80k. A single family and a condo. I would like to get into commercial apartments. My question is should I:

1. Sell my rentals for down payment.

2. Increase rental holdings for a strong personal financial statement.

Just wondering which route should I go.

Bryan Mitchell · Answer

@Freddie Williams, if your two properties were underperforming or having numerous issues, your decision would be easier. If the properties are producing positive cash flow and there’s equity there and you can qualify for a refinance to get the funds for another investment, why not? If I were you, I’d dig into the numbers and see how much cash flow you’ve actually made since ownership. Now, factor in known and unknown future expenses and see if you’re still $200+ per door. I personally prefer $300+ per door as it helps me get to my goal more quickly. So, if the property is mostly problem free, producing your target CF and is forecasted to continue, and still has upside, you may want to keep it.

Freddie Williams · Answer

@Bryan Mitchell thanks Bryan for the advice

Freddie Williams · Answer

@Tim Delaney exactly my problem. Need to raise money somehow for commercial but my current rentals are doing well. Lol.

Tim Delaney · Answer

It sounds like your cash flow would justify taking out an equity loan or their value to use as a downpayment on a commercial property if you can get a bank to do that (some won't on small investment portfolio). Or, since you would probably only get 80% out in an equity loan you could 1031 exchange them into something larger to utilize their full equity.

Freddie Williams · Answer

@Nicole Heasley Good question, true to norm for this market each purchase will probably general additional 200 per month with 40k down payment for a rental.

Nicole Heasley Beitenman · Answer

How do the numbers work out under each scenario?

Tj Hines · Answer

@Freddie Williams if you have 80K of equity available to you have you thought about refinancing taking the equity out or do a HELOC?

Freddie Williams · Answer

@Ethan Smith Hey thanks for your response. The 2 that i have has good positive cash flow of 600 a month. the condo has 50k equity in it and the house has about 40k max.

David Smith · Answer

Sell if the rent has reached the limit.

And buy a bigger building with rent increase potential.

Now is a good time to sell and buy or exchange.    That is what I am doing.

Aaron K. · Answer

How soon do you want to transition to multifamily?  If you want a full transition you'll sell eventually if not I don't see adding more rentals being helpful in the short term.

What should I do, increase rentals or sell for down payment

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