Accessing Equity and Scaling the Portfolio

[Chris Berezansky]

Hello BP Community,

I am interested in hearing thoughts from the BP Community for the best approach to taking the next steps in my REI pursuit. To set the stage, I am currently active duty military with a family. I currently own two properties, one I live in and one is a rental. I am looking to use the equity in my rental to purchase another investment property and continue to scale my portfolio.

The rental was bought in the summer of 2020 and has been rented for over 4 years by the same tenants. I currently make about $750 a month in cash flow after expenses (I am using a local property manager). I just resigned the lease this past spring and it is set for two years. The mortgage is a VA Loan with a rate below 3%. According to the many real estate platforms the value of the property is anywhere from $365k-$374k in value, giving me about $160k in equity if 100% LTV. Due to the rate and my love of the location, this property is a long-term hold for me as I could see my family using it in retirement.

My initial thoughts are either a HELOC of Home Equity Loan. I prefer the HELOC simply because it gives me more flexibility in my search before I have to begin paying back the note. I do understand that I am siding with a variable rate versus fixed rate when choosing the HELOC over the loan. Where my roadblock comes is that I have read on this forum a number of times that using a HELOC for a down payment can quickly over lever a person and that is something I don't want to do.

I have thought about DSCR loans, house hacking, BRRR (I love the idea but not so sure the wife would love it with the construction, especially if it is a house hack as well), and a few other methods of acquiring my next property.

Getting past the method of utilization of the equity in the rental is the first hurdle I would like to figure out how to solve with everyone’s help. Once that is done, I would love to continue the conversation for the remaining steps.

I appreciate any feedback you can offer. Thank you!

[Michael Smythe]

@Chris Berezansky you'll be hard pressed to find a lender/bank/credit union willing to HELOC lend more than 65% of the total loan amount on a rental.

If value = $375k x 65% = $243,750 MAX TOTAL LOANS.

You state you have $160k equity, so if we base that off the $375k estimated value => $215k current loan balance.

$243,750 - $215k => $28,750 MAX HELOC amount

A total refinance would typically allow you to access 70-75% of the property value. So, another $37k roughly.

Where investors get into trouble in your case is what happens when both rentals are vacant for 2-3 months and need $5k+ repairs each to be RentReady?

Lack of reserves can lead to financial ruin.