Best way to use untapped equity in rental properties?

Question

I have 2 rental properties I paid cash for years ago and I have never borrowed against them. They are 2 single family homes worth about 257,000 and 296,000. My personal home loan has a mortgage balance remaining of 157,000 and it's currently worth 550,000. I have a heloc on my personal home for 200,000 but ive only used 16,000 of it. I have always feared debt but I'm finding myself high on equity and low on cash flow. So I was just wanting to get opinions on the best way to leverage the equity and heloc I have?

Ty Coutts · Answer

You’re in a great position with strong equity and minimal debt, but to improve cash flow, consider leveraging strategically. A cash-out refinance on one rental could provide liquidity while keeping rates reasonable. Alternatively, using your HELOC to acquire another cash-flowing property, then refinancing that loan later, can be a smart move. If debt concerns you, look at DSCR loans, which qualify based on rental income instead of personal finances. Also, consider a portfolio loan to consolidate and free up capital. The key is ensuring any new debt enhances cash flow and aligns with your risk tolerance.

Erik Estrada · Answer

If you are in a high equity position, low cash flow, why get into anymore debt to be in a negative cash flow position?

Brandon Croucier · Answer

Josh, we are entering a period where the FED has came out and said rates are coming down.

Based on decades of data, during market cycles when interest rates are decreasing, asset prices rise. SUBSTANTIALLY.

I highly recommend tapping into your equity and accumulating some more assets at these prices, you will thank yourself in 3 years.

The best and most cost effective way to do so is a simple cash out refinance, I don't think you should touch your primary, but leverage your investments for sure.

Jay Hurst · Answer

What I always suggest for folks who do not like a lot of is to borrow  no more then 60% loan to value. The reason is that for most programs anyway the 60% loan to value will give you the best rate and best cost available and of course you should still be able to have a healthy cash flow at that loan loan to value. You can maximize your cash this way with the lowest rate possible on the debt and be able to reinvest all the while still generating cash flow.

Brandon Ja · Answer

Josh I find myself essentially in the same situation and I have been thinking about my options.  I have 1 SFR  that is paid off and my primary is also paid off.  Right now I am considering doing a cash our refinance on both to access the equity.  This money will be used to pay down some debt I have and also purchase 1-2 additional rental properties.  That’s what I’m considering but still ironing out the details.