Help! What should I do?

Question

Hello BiggerPockets! I’m in somewhat of a situation and I would really love some help with my decision-making. I currently own 2 two family homes. One of them is on a 10 year mortgage at 2.8 the amount of rent I am getting is just covering the mortgage taxes and insurance. I also have another that is on a 15 year at 2.2 which I am cash flow flowing about 1000 per month. I’ve owned these properties for about eight years and three years respectfully.

Between the two of them, I have a little over 800,000 in equity, pretty good for only putting down around 35,000 between the two of them!!

I’m 36 years old and make a pretty decent amount of money around 550 K my question is simple. Do I cash out refi on both properties leaving only 25% equity on each? this would allow me to take out around 450 K and use it to buy another substantially sized property maybe a six or a seven unit in New Jersey. I’ve done the math many times over and my two original properties at 30 year mortgages at today’s rates would be the exact same payment as they are today so my cash flow or lack thereof would remain the same. The next property being around a 1.6 to 1.8 purchase price would probably cash flow something around 1500 to 2000 per month.

I feel as though My Equity is kind of dead money. Sure I can wait 10 years and receive all of the rents or I can capitalize on my age and spread my money around to more properties. I think we are all under the impression that Real Estate will go up significantly over the next 10 years so I thought capturing that increase on another 1.8 million would be pretty significant to my net worth.

Of course it’s easy to analyze deals all day but when it comes to your entire net worth and all the money that you have, it’s very scary so I guess my question is simple. What do you guys think at 36 years old should I be making all of my equity work for me at this age to increase my net worth as much as possible for my retirement or should I stick it out with the two that I have and just ride them for the next 10 years and then capture all of the rental income? any responses will be greatly appreciated. Thank you guys so much.

Nicholas Salvia · Answer

@Caleb Brown

So property 1: 400k straight equity after paying everything..no cash flow currently on a 10yr

Worth 585k only makes about $28,700 net.

It’s much older I haven’t put anything into it. Rent amounts reflect that

Property 2: bigger than property 1, around 400k also.

Cash flowing 1k/mo on a 15yr I’ve put around 70k into the combined units everything updated.

Worth about 875k makes $57,300 net

So instead of cash out refinancing both you think I’m better off dumping property 1 and 1031 into something more substantial?

Leave property 2 alone?

Caleb Brown · Answer

I think doing a cash out refi would be a great idea. Another option can be doing a 1031 to exchange those. I would be more willing to 1031 the one breaking even and then keep the other. If you do cash out refi do the numbers as you've done, double check your math that it accounts for repairs, maintenance, etc.