How to make more money?

Question

I currently own 2 houses that I rent out on air bnb and I’m about to flip a house. What is the best way to make more money with properties?

Trying to figure out if there’s a way to get money from my current properties so I can get more properties not sure how to go about it . Any advice would help

Scott E. · Answer

House flipping is a great way to make money to use towards buying more rental properties. So you're on the right track with your plan there, but just a warning, this is a tough market to flip in.

You can pull cash out of your 2 rental properties via either a cash-out-refinance or by using a home equity line of credit. Although it's going to be tough finding a lender who will do a HELOC on a rental property. And whether you do a HELOC or a cash out refi, your interest rate is going to be crazy high.

If you need cash now you can sell your rentals and redeploy that money into something else. But not necessarily a good plan if you are trying to build up a portfolio of rentals.

Look at your return on equity, that'll help you decide if it makes sense to sell. If you have $100,000 of equity in one of these houses and it cash flows $500 per month, then that is a 6% return on equity. Not great. Probably consider selling. But if you have $100,000 of equity in one of these houses and it cash flows $1000 per month, that is a 12% return on equity. Great return. That's a deal that is probably worth hanging onto.

Joe Villeneuve · Answer

The money to buy future properties is found in the equity of your current properties.  Sell the current ones, and use the cash to buy new ones.  As your equity grows in your current properties, you are losing money because your cost to buy your current property is the equity in that property.  As it goes up, so does your cost of that property.  I know this sounds backwards, but it is simple math.

When you buy a property, your cost is exclusive to the cash you put into it.  The more cash you put in, the more you are paying for that property.  This is true because the tenant is paying for the rest.  Your down payment is the first equity in your property, and you are paying for that equity.  When the property goes up in value, the equity also goes up on an equal basis.  For every dollar increase of PV, it increases the equity that same dollar.  This is free money, and is adding to the cost of the property.  The equity is the cost, the Property Value and cash flow is what that equity is buying.  When you buy the property, you pay 20% down, and get a PV of 5 times what you paid for it (the DP).  As your property increases in value, since the equity increases at the same dollar amount, the new equity is buying at face value, which is diluting your original DP/equity your cash paid for.  This means the value of your equity, is actually going down.

Now, sell the property, take control of all the equity, and buy new where the PV is once again 5 times what you are paying for it. This also increases your CF, but the equity doesn't change...it's just moved forward, but the PV and CF it now is buying, is larger.

Now, when