Equity or Capital

7 Replies

I recently purchased a duplex in Knoxville, Tn. Should I focus on building my equity in the property or save my excess money for capital? Is it better to leverage a property or have more in savings for my next deal?

I think you are asking if it's better to use excess funds to pay down mortgage balance or to reinvest in more properties? If that is the question then I guess it would depend on what your goals are. If you are looking to build up multiple properties then you are better to put that money towards buying more. That is assuming that you are buying right and have decent cash flow from what you are buying

@Dustin Fisher depends how much interest you're paying and what other opportunities you have. Let's say you're paying 5% on your current loan and you believe you can make 7% on a new deal. Then, execute the deal. Vice versa.... Take some time create few models base on your scenarios and see what kind of output you're getting.

Cash moves, equity dies. Go with the cash. To access it your are still going to have most likely 25% equity since most lenders will do a refi at 75% of the ARV. So it's not like you'll have no equity.

Pull the cash out, let your tenant pay off the mortgage for you, and use that cash for your next deal...rinse and repeat until you get tired.

you'll get pros and cons for each.

In my market I can buy properties with massive equity so maximizing leverage isn't necessary for me, I use the leverage for what the house and rehab will cost and the rest is free equity.

However, cash is much more valuable than equity so I rarely pay down extra on performing units.

@Alexander Felice , sounds like you're utilizing a BRRR strategy? Good strategy to get your cash in and out then move on to the next deal, keeping the rest as built in equity of ~25%

We recommend keeping as little cash in the deals as possible because now there are many ways to maximize returns instead of paying down mortgages. As long as you meet your cash flow criteria and don't over leverage, you'll be fine. When you start to build some equity you can always refi that later for more deals, again, if it still meets your cash flow criteria. Lending is cheap now and cash is king.

Originally posted by @Jarred Sleeth :

@Alexander Felice, sounds like you're utilizing a BRRR strategy? Good strategy to get your cash in and out then move on to the next deal, keeping the rest as built in equity of ~25%

We recommend keeping as little cash in the deals as possible because now there are many ways to maximize returns instead of paying down mortgages. As long as you meet your cash flow criteria and don't over leverage, you'll be fine. When you start to build some equity you can always refi that later for more deals, again, if it still meets your cash flow criteria. Lending is cheap now and cash is king.

yeah this method just fits my market really well, the key being buying houses that have built in equity or value-add.

Paying down mortgages just doesn't really make sense unless you: 1. have no plans to grow any further AND 2. you can't find a higher return on your money than the rate from your debt service.

You're right that lending is cheap now, but not for much longer. Use as much as possible!

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