Using home equity to finance a multi-family

[Chris Agun]

Hello All happy new years!

So I would like to get the opinion of some experienced investors.

My goal is to buy (3) three to four multifamilies.

I inherited a 3 family fully paid off and own my current home.

Between the two I have roughly 550-600k in home equity.  

What is the best strategy to leverage this for my goal?  

Also I'm not opposed to doing something commercial if someone has an idea.

[Dennis Bragg]

Hi @Chris Agun

Happy New Year! You’re in an exciting spot. With fully paid-off properties and significant equity, your options are wide open.

I had a friend in Connecticut who ended up investing in Phoenix and he was in a situation much like yours - an inherited property and equity to work with. They used a HELOC to finance a multi-family purchase, which allowed them to make staggered acquisitions and keep cash on hand for renovations. It's a move that worked out exceptionally well, especially in a growing market like Phoenix.

Here’s how you could approach it:

Unlocking Equity:
A HELOC is great for flexibility, while a cash-out refinance might be better if you're aiming to make multiple acquisitions quickly. It really depends on your tolerance for risk and how much liquidity you want to maintain.

Researching the Waterbury Market:
Waterbury has shown solid potential for multi-family investments. I recently saw someone turn around a three-family property there by targeting tenents like teachers and nurses.. stable professionals who value quality housing. The problem you may run into is the lower appreciation rates compared to the South.

Considering Commercial Real Estate:
Have you looked at mixed-use properties? A friend of mine invested in one last year—apartments upstairs, a small coffee shop downstairs - and the combination of income streams made it a steady performer.

Scaling with a 1031 Exchange:
While not applicable unless you sell a property, planning for a 1031 exchange could help you scale quickly while avoiding capital gains taxes. For instance, one investor I worked with used it to jump from a duplex to a 4-unit building in Phoenix, effectively doubling their rental income as well as the forecasted appreciation rate on their new property. It's a little harder to cashflow here in San Diego, but it's possible with the right team in place!

By the way, Phoenix’s rental market has been on fire lately, with a mix of strong appreciation and reliable tenant demand. I’m curious - are you leaning toward staying local in Connecticut, or are you open to exploring oppurtunities in out-of-state markets like Phoenix?