Let's say that over the course of a few years, you buy 10 properties using BRRRR and they all look like this:
- Purchase price $50k
- Rehab $20k
- 70% Refi based on $100k ARV
So you now own 10 properties, each of which is valued at $100k and carries a $70k mortgage. Congrats - you didn't invest a single penny of your own money and now you've created $300k in equity for yourself! But let's say that the 10 properties are (more or less) cashflow neutral, and now you want to turn that $300k equity gain into cashflow. What's the best way to do this?
The obvious answer is to sell some of the properties and use the profits to pay down the mortgages on the remaining properties. BUT, after transaction costs and taxes, each house sale would result in only $10-$15k of profit (even though you have $30k equity per house). Which means you would have to sell 6 houses just to pay off 1 mortgage!
Is there a more productive, effective way to turn your equity into cashflow?
Well it depends on how much cash flow each property is bringing in the first place. And then I would add all that up and get a total number cash flow for all properties. Now if you sell six to pay off one, does that one property free and clear bring you more cash flow than what you had with all of them combined. Also if your thinking long term investment I would leave it the way it is and let it pay its self off which then you have 10 free and clear properties bringing in cash flow. You can also use a HELOC on the properties once you have enough equity to pull out money you can purchase more or to pay one off, so you don't have to necessarily sell them off. Hope this helps. Good luck!
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