Lots of stuck equity, what to do

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Lots of stuck equity, what to do

Avery Heilbron
Realtor · Raleigh-Durham, NC · Member since 2018 · 324 posts · 218 votes

Hi,

It's been about 4 years since I first posted on here wanting to buy my first househack. Now I am financially free. Real estate is cool. I bought my first property in the Boston area and now live in the Raleigh-Durham area.

My struggle right now is utilizing my properties with strong equity to buy more. In my duplex I currently have $330k in equity and my triplex I have $270k in equity and my single family airbnb I have $175k in equity.

My duplex cash flowed just over $20 grand last year, my triplex $11k and my airbnb I only listed in July last year and did roughly $1k/month. Respectively my interest rates are 3.375,2.75, & 4.125 on these properties. 

My conundrum here is my ROE. $1600-$1700/month cash flow on a duplex is pretty cool but my ROE on that property is around 6%. The issue is I can't get a HELOC on an investment property (I have tried - maybe not hard enough) and a cash out refi leaves me with a couple hundred dollar cash flow and roughly an $80k check(cash out refi in MA requires 70 LTV from people who I've spoken to) after finishing the refi (which doesn't feel worth it).

Most deals in the multifamily space I see are also not great return atm and may not even cover the required DSCR from the lender. So I don't know what I should do really.

Is it time to be patient, 1031, do the cash out and lose my cash flow? I'm not sure the best option for these.

I can also get a sizeable HELOC on my primary which I plan to do anyway and just bought another property a couple of weeks ago for airbnb. For all my purchases I've been leveraging my W2 and real estate (and now social media income) to save up.


Thanks for reading!

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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
3y

I'd first leverage the equity in your primary and do a HELOC. I would also say a 1031 is ideal to reinvest and expand your portfolio. Well done so far though! Run #'s and take it slow, don't just buy a place

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  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    3y

    I'd first leverage the equity in your primary and do a HELOC. I would also say a 1031 is ideal to reinvest and expand your portfolio. Well done so far though! Run #'s and take it slow, don't just buy a place

    2Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    3y

    HELOC every one of those properties- why wouldn't you? HELOCs are free to close (many are, anyhow), liquid, spend like cash and they're free until you use them. Refi doesn't make sense now and a 1031 doesn't change the fact that you think properties don't make sense in this market (although you could make sizable, tax free down payments on several properties and scale quickly, likely without impacting your cash flow).

    No reason NOT to HELOC in my opinion.

    2Reply
  • Avery Heilbron
    OP
    Realtor · Raleigh-Durham, NC · Member since 2018 · 324 posts · 218 votes
    3y

    @Corby Goade I haven't been able to get a HELOC for a non primary

    0Reply
  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    3y
    Quote from @Avery Heilbron:

    @Corby Goade I haven't been able to get a HELOC for a non primary


     There are banks out there who will do them, you just have to shop around. You can probably get recommendations on here. I have several at Bank of the West. Most won't do MFH, but there are a few!

    1Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y

    Sell the properties.

    1Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    3y

    I would be patient and wait for rates to come down.  Low ROE sucks, but enjoy the cash flow for the time being.

    And I would shop around for HELOCs. They're out there.

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    2Reply
  • Leo R.
    Investor · Member since 2021 · 591 posts · 695 votes
    3y

    @Avery Heilbron congrats on building up the portfolio!

    Your conundrum is pretty common these days, I think (I've been facing similar issues).

    It is hard to find a HELOC for an investment property, but it IS possible (at least it is in my area)...but, I did have to call around to a LOT of banks and credit unions before finding one that would do a HELOC on a rental property.

    Personally, I'm hesitant to sacrifice cashflow and low locked-in rates (esp. since the old sub-4% rates may be the best rates we'll see in our lifetimes)...but, it's a balancing act; if a person can get enough cash to acquire another property and only sacrifice a relatively small percentage of their overall cashflow in the process, then it may be worth it...

    If the numbers pencil, they pencil...personally, I'm not seeing much pencil out right now, but prices may come down as the market adjusts to the higher rates...

    Good luck out there!

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Avery Heilbron:

    Hi,

    It's been about 4 years since I first posted on here wanting to buy my first househack. Now I am financially free. Real estate is cool. I bought my first property in the Boston area and now live in the Raleigh-Durham area.

    My struggle right now is utilizing my properties with strong equity to buy more. In my duplex I currently have $330k in equity and my triplex I have $270k in equity and my single family airbnb I have $175k in equity.

    My duplex cash flowed just over $20 grand last year, my triplex $11k and my airbnb I only listed in July last year and did roughly $1k/month. Respectively my interest rates are 3.375,2.75, & 4.125 on these properties. 

    My conundrum here is my ROE. $1600-$1700/month cash flow on a duplex is pretty cool but my ROE on that property is around 6%. The issue is I can't get a HELOC on an investment property (I have tried - maybe not hard enough) and a cash out refi leaves me with a couple hundred dollar cash flow and roughly an $80k check(cash out refi in MA requires 70 LTV from people who I've spoken to) after finishing the refi (which doesn't feel worth it).

    Most deals in the multifamily space I see are also not great return atm and may not even cover the required DSCR from the lender. So I don't know what I should do really.

    Is it time to be patient, 1031, do the cash out and lose my cash flow? I'm not sure the best option for these.

    I can also get a sizeable HELOC on my primary which I plan to do anyway and just bought another property a couple of weeks ago for airbnb. For all my purchases I've been leveraging my W2 and real estate (and now social media income) to save up.


    Thanks for reading!


    The decision to sell vs wait should be based on actual LTV/equity vs current cash-flow future accumulation.
    In my case, it's a brainer to sell as Joe mentioned. 

    For me personally, the decision to hard sell comes when actual equity is more than $500K as after that the tax consequences would be bigger.
    For example, one of the houses here is purchase 150k back in 1993, same house is 3 million now. Imagine paying capital gain tax for 2.5mil LOL. 
    So I would just keep moving in and out when equity size is greater than 400k regardless of cash flow,etc.
    Another factor is my own age and age of retirement. As equity from retirement way exceeded 401k then it's an early ticket for actual retirement and downsizing.

    With residential IRR is 12%, I should sell every 8-9 years to avoid this sizeable cap. gain.

    Lot of factors, really, that's just an example.

    2Reply
  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    HELOC on primary and you can get a cash out on the investment property with a commercial loan (75% LTV) and you can get a cash out on the Airbnb as a second home loan. I have done all 3 of those in the past 12 months so it's definitely possible.

    2023 - to get out some of the equity of the properties that you have maximized on the equity it would be good to explore the 1031X and move the asset to a higher yield area and/or unit count. 

    Congrats on scaling so quickly!

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    0Reply
  • Sanderson Mittnacht
    Investor · Chatham, NJ · Member since 2021 · 36 posts · 21 votes
    3y

    Curious (and I'm asking to learn, not to be a pain), why can't you 1031x this property to eliminate Cap Gains?

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Sanderson Mittnacht:

    Curious (and I'm asking to learn, not to be a pain), why can't you 1031x this property to eliminate Cap Gains?


     
    as of 1031, it's only applicable for rental, 121 for owner occupant ; but well yes we can argue we can combo 121+131 (sell after < 2 years of rent of prev. home) and do it in loop but it requires moving to a third house, that's bit painful. I'm literally in my second loop journal after hitting this limit lol.

    1Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    3y

    @Avery Heilbron congrats on your success so far, way to go! I personally wouldn’t refi until/unless you can do a cash out refi and continue to cashflow (ie when rates come down) provided you want to hold your existing assets longterm for equity growth especially if they are in markets with longterm growth potential (sounds like it). LTRs are way less work as you’ve learned by experience and having both STRs with high cashflow and LTRs with lower cashflow but high growth potential is a nice balance provided each property is performing well. If you want to accelerate your short term rental biz and jack up your cashflow then consider selling your least favorite multi (it’s a good time to 1031) and redeploy your equity. Otherwise, try to find a Heloc product and/or wait for rates to come down and continue to hold for longterm appreciation. It really depends on what moves you closer toward your goals, your timeline, etc. You have a great foundation. Don’t be in a hurry. You’ve made great decisions so far. Definitely get a Heloc on your primary and keep stacking those Benjamins (profit) to keep the momentum going.

    0Reply
  • Tom Wagner
    Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes
    3y

    @Avery Heilbron big time moves! One thing not discussed is whether you meet the 2/5 test on any of these properties to avoid capital gains? If so you could consider selling, but I'd be very hesitant to let go of those great interest rates. Dig around for the HELOC, continue piling cash flow and if your scaling is slightly slower with slightly lower ROE than what you'd like I think that is OK.

    Real estate is a multi-decade marathon, not a sprint. You're going to do huge things and you are in like the top of the 2nd inning. No need to rush it!

    2Reply
  • Robert Rosenberg
    Member since 2023 · 4 posts · 1 vote
    3y
    Quote from @Avery Heilbron:

    Hi,

    It's been about 4 years since I first posted on here wanting to buy my first househack. Now I am financially free. Real estate is cool. I bought my first property in the Boston area and now live in the Raleigh-Durham area.

    My struggle right now is utilizing my properties with strong equity to buy more. In my duplex I currently have $330k in equity and my triplex I have $270k in equity and my single family airbnb I have $175k in equity.

    My duplex cash flowed just over $20 grand last year, my triplex $11k and my airbnb I only listed in July last year and did roughly $1k/month. Respectively my interest rates are 3.375,2.75, & 4.125 on these properties. 

    My conundrum here is my ROE. $1600-$1700/month cash flow on a duplex is pretty cool but my ROE on that property is around 6%. The issue is I can't get a HELOC on an investment property (I have tried - maybe not hard enough) and a cash out refi leaves me with a couple hundred dollar cash flow and roughly an $80k check(cash out refi in MA requires 70 LTV from people who I've spoken to) after finishing the refi (which doesn't feel worth it).

    Most deals in the multifamily space I see are also not great return atm and may not even cover the required DSCR from the lender. So I don't know what I should do really.

    Is it time to be patient, 1031, do the cash out and lose my cash flow? I'm not sure the best option for these.

    I can also get a sizeable HELOC on my primary which I plan to do anyway and just bought another property a couple of weeks ago for airbnb. For all my purchases I've been leveraging my W2 and real estate (and now social media income) to save up.


    Thanks for reading!


    0Reply
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