$450,000 in equity, what do I do?

Bend, OR · Member since 2013 · 32 posts · 4 votes

Hello BP!

I have a good problem. I have a SFH rented out in the Seattle area, about three miles from Amazon's HQ. It has gone up a lot in the last few years. It now has about 450K in equity. I have it rented and cash flowing a small amount. I know it's bad practice to have so much equity in one place and I should refi and buy more. The problem is I have a 3.7% fixed rate on it, so a refi would be much higher at this point probably eliminate the small cash flow. Any ideas or advice would be appreciated!

Best

1 Reply

98 views

Most Popular Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Originally posted by @Eric Healy:

@Bjorn Ahlblad great thanks, doesn’t this make it hard to find a cash flowing property that can pay both debt services?

yes !! you could play the arbitrage game and borrow at 4 or 5 on your heloc then use those funds to invest with a really good HML in Bend that is doing short term flips probably make 10 to 12 gross and net 5% to 7% on your arbitrage..

or you could just use the money for quick turn and burns.. if you have the band width to do those..

I would personally be reluctant to take on debt to just buy 100 to 200 a month of cash flow unless it was a property I had a pretty good idea was going to have a run up in value. Also did you live in it for 2 of the last 5 years if so might be a good time to simply exit and get tax free 450k.. then use that money to buy a small mulfi family with 30% down so your not leveraged to your eyeballs.

Podcast Guest on Show #222

JLH Capital Partners51 Review

Website View Page

11 Reply

See this reply in the discussion

32 Replies

Jump to latestLatest

Sort by

John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
7y
Have you considered a HELOC to buy more properties?
6 Reply
Eric Healy
OP
Bend, OR · Member since 2013 · 32 posts · 4 votes
7y
@John Thedford yeah, I that is something I have thought about. Will banks now let you use HELOC as a down for an investment property? Wouldn't that be 100% financed then?
0 Reply
Bjorn AhlbladPro Member
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
7y
@Eric Healy HELOC is fine to use as a downpayment. Good as cash!
1 Reply
Eric Healy
OP
Bend, OR · Member since 2013 · 32 posts · 4 votes
7y
@Bjorn Ahlblad great thanks, doesn’t this make it hard to find a cash flowing property that can pay both debt services?
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Eric Healy:

@Bjorn Ahlblad great thanks, doesn’t this make it hard to find a cash flowing property that can pay both debt services?
yes !! you could play the arbitrage game and borrow at 4 or 5 on your heloc then use those funds to invest with a really good HML in Bend that is doing short term flips probably make 10 to 12 gross and net 5% to 7% on your arbitrage..
or you could just use the money for quick turn and burns.. if you have the band width to do those..
I would personally be reluctant to take on debt to just buy 100 to 200 a month of cash flow unless it was a property I had a pretty good idea was going to have a run up in value. Also did you live in it for 2 of the last 5 years if so might be a good time to simply exit and get tax free 450k.. then use that money to buy a small mulfi family with 30% down so your not leveraged to your eyeballs.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
11 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
PS what are you flying ???
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Bill Goodland
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
7y
Originally posted by @Eric Healy:

Hello BP!
I have a good problem. I have a SFH rented out in the Seattle area, about three miles from Amazon's HQ. It has gone up a lot in the last few years. It now has about 450K in equity. I have it rented and cash flowing a small amount. I know it's bad practice to have so much equity in one place and I should refi and buy more. The problem is I have a 3.7% fixed rate on it, so a refi would be much higher at this point probably eliminate the small cash flow. Any ideas or advice would be appreciated!
Best
Eric, congrats man because that's a great problem to have. You have a ton of options, but I think the most important is realizing that you should shift that equity to start working for you whether it be through sale, refi, HELOC or other creative strategies. I think if you ran analysis on the return you're currently getting and the return that equity could get you elsewhere, a sale would make the most sense, although I do completely understand the hesitation to sell given the location of the property and low interest rate you currently have. You could theoretically use that low interest rate to your advantage and even owner financing the place to a retail buyer given your low interest and even sell off the note if you need cash now as opposed to refinancing at a higher rate but I would personally use a HELOC. A lot of banks have introductory rates for HELOCs that they use as a loss leader for the branch and you can shop around for the lowest rate or any bonuses they have because its the cheapest money you can borrow.
Once you have that line of credit, rather than utilizing it as collateral for downpayments on leveraged properties, I would use it to leverage the strength of cash offers on distressed properties ideally to motivated sellers that allow you better access to good deals compared to those with financing contingencies. By making cash offers using your HELOC you can usually get steep discounts that would allow you to implement the BRRRR strategy by buying cash with the HELOC, building some equity with a rehab and/or buying below market then refinance out and expand your portfolio. This way, you can let the same money work for you over and over again to aquire more assets, build equity and cash flow while never having to sell this gold mine of a property you have with so much equity in it.
A word of caution with HELOCs though, I hear a lot of them may have introductory rate for the first year and then shoot up after that so it may benefit you to have one for a year, then shop around to another bank for another low introductory rate and so on. Keep us posted and good luck!
3 Reply
Eric Healy
OP
Bend, OR · Member since 2013 · 32 posts · 4 votes
7y
@Jay Hinrichs that’s a Vans RV4, unfortunately I sold it. My goal is to have enough cash flowing real estate at to write off a plane payment!
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
@Bill Goodland the other thing with Heloc's ( and I am not suggesting this will happen ) but they can be frozen and called without notice. this happened to millions of them during the great GFC just read the small print. LOL
if the bank deems the area or collateral could be at risk in their unilateral decision they can just freeze it.. and you usually don't know until you try to access it.. usually takes a month or two before you get your dear investor letter..
I rescued quite a few flippers that were mid project and then could not get anymore money out of their heloc..
But again not predicting it but there is the thought process that ( and or good reason) that these are loans that once taken are good until you sell the property etc.. the bank is not going to advertise this fact. you need to read it in the docs and I bet most of the MLO's at the credit unions don't even know what the docs say.. :)
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Eric Healy:

@Jay Hinrichs that’s a Vans RV4, unfortunately I sold it. My goal is to have enough cash flowing real estate at to write off a plane payment!
Friend of mine had a Vans it was a tail dragger and he put the wankel engine In it.. that was a rocket ship.. 180 knots true..
but pull the power and it drops like a stone .
Me Cirrus Sr 22.. but semi retired from flying these days but flew that thing all over the US>
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Jeremy Benezra
Flipper/Rehabber · Sammamish, WA · Member since 2016 · 57 posts · 14 votes
7y
Originally posted by @Eric Healy:

@John Thedford yeah, I that is something I have thought about. Will banks now let you use HELOC as a down for an investment property? Wouldn't that be 100% financed then?
You don't have to tell the bank where the money is going. When you apply you can say I want to do some improvements around the house, go on a big vacation... Then use it for what you want. Did that on my BOA LOC. I was specifically told the only thing I can't use my LOC for was the down payment on another property.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Eric Healy:

@Jay Hinrichs that’s a Vans RV4, unfortunately I sold it. My goal is to have enough cash flowing real estate at to write off a plane payment!
our Hanger is at KUAO right down the ramp from Vans. so we seem them coming and going a bunch.. also my buddies painted theirs with a war bird theme.. retired united guys. That's a labor of love to build those things.. I was living in Napa at the time and would help him in his garage until he moved it to his hanger at Sonoma airpark..
Unfortunately he had an electrical issue ( that engine must not have mags ) but anyone total power failure coming from Truckee one day he was just entering the 45 and of course could not make the run way.. and landed in the vineyards which cushioned his controlled crash landing.. minor injuries he was lucky.. plane was totaled though..
Anyway back to our regularly scheduled program I just don't get to talk to many pilots on BP :) and good luck with whatever decision you make with your equity.. nice problem to have..
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Bill Goodland
Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
7y
Originally posted by @Jay Hinrichs:

@Bill Goodland the other thing with Heloc's ( and I am not suggesting this will happen ) but they can be frozen and called without notice. this happened to millions of them during the great GFC just read the small print. LOL
if the bank deems the area or collateral could be at risk in their unilateral decision they can just freeze it.. and you usually don't know until you try to access it.. usually takes a month or two before you get your dear investor letter..
I rescued quite a few flippers that were mid project and then could not get anymore money out of their heloc..
But again not predicting it but there is the thought process that ( and or good reason) that these are loans that once taken are good until you sell the property etc.. the bank is not going to advertise this fact. you need to read it in the docs and I bet most of the MLO's at the credit unions don't even know what the docs say.. :)
Wow, thanks for the insight. I had no idea this could potentially be the case but it makes sense. I understand the bank being concerned if they deem the HELOC is being used on a speculative investment that may be at risk during a downturn such as a spec home or flip, but do you think they pose the same risk if he were to use it to buy lower end rentals below market value with equity most likely already built into the deal?
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Bill Goodland:

Originally posted by @Jay Hinrichs:
@Bill Goodland the other thing with Heloc's ( and I am not suggesting this will happen ) but they can be frozen and called without notice. this happened to millions of them during the great GFC just read the small print. LOL
if the bank deems the area or collateral could be at risk in their unilateral decision they can just freeze it.. and you usually don't know until you try to access it.. usually takes a month or two before you get your dear investor letter..
I rescued quite a few flippers that were mid project and then could not get anymore money out of their heloc..
But again not predicting it but there is the thought process that ( and or good reason) that these are loans that once taken are good until you sell the property etc.. the bank is not going to advertise this fact. you need to read it in the docs and I bet most of the MLO's at the credit unions don't even know what the docs say.. :)
Wow, thanks for the insight. I had no idea this could potentially be the case but it makes sense. I understand the bank being concerned if they deem the HELOC is being used on a speculative investment that may be at risk during a downturn such as a spec home or flip, but do you think they pose the same risk if he were to use it to buy lower end rentals below market value with equity most likely already built into the deal?
Does not matter what you use the money for .. just important to read the fine print .. and not get stuck with half a rehab and no money to finish. At least all the heloc's I have seen had this language.. does not mean you could not negotiate it out of the note.. but I would think that would be pretty tough to do as its buried in their boiler plate.
this really came to roost for us in the GFC were I had large 5 million dollar plus Lines of Credit that were all on 1 year revolvers. which is standard for those types of facilities.. we used the money to buy foreclosures and flip them. and we used it to lend to others we had close to 30 million of these lines with 6 banks.. well every bank but one called our loans.. However one of my partners at the time owned a bank and was on a bank board.. so when we negotiated these LOC"s we put in a clause that if they called the loans and did not roll them over we had 36 months to pay them off.. and boy did we need that.. Other HML in my market who did not have those terms got HAMMERED big time.. put out of business. that's why 90% of the HML today all started post 08 .. after the crash.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
3 Reply
Tyler Faison
Rental Property Investor · Dallas, TX · Member since 2018 · 37 posts · 13 votes
7y
@Jay Hinrichs Wow! Lucky indeed!! Goes to show you experience matters a lot in any industry. What's more expensive...insurance on a vacant SFH or a small plane like that?
0 Reply
Eric Healy
OP
Bend, OR · Member since 2013 · 32 posts · 4 votes
7y
@Jay Hinrichs great talking with you. I like the SR20 and 22s. I would like my next plane to be an SR20 I think. I’m a former engineer from Lancair here in Bend, would like one of those someday as well.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Eric Healy:

@Jay Hinrichs great talking with you. I like the SR20 and 22s. I would like my next plane to be an SR20 I think. I’m a former engineer from Lancair here in Bend, would like one of those someday as well.
ya that freak Hail storm in Bend really fubared Lancair.. I like their turbine single.. but lots of wrecks in those babys..
If your going to get a Cirrus just go for the 22.. the 20 is under powered in heat and attitude.. if you were say flying it in states back east with no real terrain.. that's ok.. the ones I flew were 150k true which is not bad for GPH burn.. my 22 was good for 172 knots true lean of Peak about 12 gph running around Oregon and the west at 8 to 11k feet.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Eric Healy
OP
Bend, OR · Member since 2013 · 32 posts · 4 votes
7y
@Jay Hinrichs interesting aviation and real estate question. Anyone ever invest in hangers? When I owned my plane the single biggest expense was the hanger rent. I was paying about $350/mo for about 200sqft in a shared hanger in Bend OR, and that was hard to find. You can do some math on a large hanger, this one had about 10 planes in it.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Tyler Faison:

@Jay Hinrichs Wow! Lucky indeed!! Goes to show you experience matters a lot in any industry. What's more expensive...insurance on a vacant SFH or a small plane like that?
well with planes is hull value and experience.. but safe to say hull value for bank purposes on 500 to 700k Cirrus and medium experience IE IFR and 500 plus hours with 100 in type would run you 200 to 200 a month.. smooth million..
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
I would love to find a hanger investment I think if I was going to have rentals that is one of the top ones to get for ease of tenant management and repairs.. We bought our hanger it was in a condo.. I paid 250k for it.. association is maybe 100 a month and its a 50X60 .. we had two cirrus in it and a champ.. and all sorts of other toys one MUST have LOL..
some of our neighbors though had full on man caves with apartments etc in them. I would be all over being able to develop one at an airport with demand. that's for sure.. the cirrus has a long wing too so the T hangers and others were very susceptible to hanger Rash.
Podcast Guest on Show #222
JLH Capital Partners51 Review
Website View Page
0 Reply
Eric Healy
OP
Bend, OR · Member since 2013 · 32 posts · 4 votes
7y
@Jay Hinrichs yeah that’s the one I worked on, the Evolution.
1 Reply
Eric Healy
OP
Bend, OR · Member since 2013 · 32 posts · 4 votes
7y
@Bill Goodland thanks! I like this strategy and will give it some thought.
0 Reply
Kevin Dong
Flipper · Fort Myers, FL · Member since 2017 · 182 posts · 98 votes
7y
I would 1031 to another property lol. Equity is just the paper . Especially with these high end low cash flow property
1 Reply
David NutakorPro Member
Rental Property Investor · Palmdale, CA · Member since 2016 · 122 posts · 88 votes
7y
@Jay Hinrichs, thanks for the information on HELOC. This is something that most of us did not know about. You may have to write a blog or do a podcast regarding pros and cons of HELOC.
0 Reply
Trevor Hall
Member since 2018 · 9 posts · 1 vote
7y
@Eric Healy Pull 225,000 and put it towards this apartment deal I'm looking at. Message me
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.