How to unlock $2 million in home equity?

Question

Hey Everyone,

For the past few weeks I’ve been working to find ways to get cash from our home equity.

My family has a beach home that has about $2 million in equity built up.

I’ve come to the latest conclusion that it’s the equivalent of having a flash drive with a bunch of Bitcoin on it and I can’t find the password.

My family for too long have said we are land rich and cash poor. 2 years ago we did a cash out refi and used that cash to renovate our home and up the rent we charge on the beach house.

My name and my mothers name are both on the property. Cash out refi is in her name. Her DTI is about 50% only because of the home equity loan and the taxes. No other debts.

My DTI is 57% for my house, car and student loans.

I have a property that will produce a nice amount of cash that I can fund with a DSCR loan. Just need the cash down to make it work.

I’ve made it my life goal to find a way to unlock our equity to benefit my family and leave a legacy portfolio for my family so we aren’t land rich and cash poor. What are some ways to unlock our equity?

I’ve looked at companies like Unison. They offer an “Equity Investment”. They will give us cash equal to 17.5% of our home equity in exchange for shared equity contract on our house? Would you do a shared equity contract?

Are there any other ways to turn the equity into cash? Thank you!

Beth Johnson · Answer

@Richard Phillip Lewis

It's going to be better rates when it's a primary home so being viewed as a single property with rental income could be to your benefit.

Just did a heloc on our second home and lend that out in private money loans (arbitrage as the other commenter mentioned) so that we can create a positive cashflow and allow us to pull funds if we find another property to purchase. We got our heloc through East West Bank which is strictly asset based and not DTI restricted but it only went up to 60% LTV which we liked since we don't need or want high leverage. So call around to local banks and credit unions to find this option. 2nd position helocs are a little more in interest rate but still very worth looking into.

Hope this helps!

Andrew Freed · Answer

@Richard Phillip Lewis - Have you considered a rental line of credit. These are a rare product but I do know of a few local credit unions and banks that offer up to a 75% LTV line of credit on a rental property. You may be able to utilize the HELOC to purchase more cash flowing assets as long as the returns on the properties are more than the interest rate on the RELOC. Arbitrage cheap lines of credits into more profitable endeavors, just like a hedge fun. That has been my wealth strategy and it has work extremely well for me. I'm on my second HELOC working on my third right now.

You could always do a cash out refinance too, however then you would change your crazy low interest rates on the first lien. I'd rather keep my 2.5-4% interest rates on a majority of the debt and access the equity with a HELOC at a higher rate, essentially creating a blended interest rate of 20% variable, 80% fixed. They also have equity loans out there too at higher rates than the line of credit, which might be an option.

Peter Mckernan · Answer

Have you toyed with the possibility of selling it? What does that look like and would it be better to sell it, move the money into multiple investments? Maybe that is an option, sell, throw it into MFH or triple net that will get you the better cashflow that you really would need to make that dream a reality. I know that it sounds like you have a great cashflow property now; however, there might be another couple of avenues when you sell you could really unleash the cashflow/investment to leave that legacy!

Richard Phillip Lewis · Answer

@Dwayne Poster This past summer was our first summer after the renovation so we had a limited rental year. However, we cashflowed $30k. In a full year we should be able to cashflow $70,000 annually.

Richard Phillip Lewis · Answer

@Peter Mckernan I Know thats an option, but we dont want to do that. We have lived here for 60 years and the property and location are a great part of our lives. Its the equivalent of removing your heart and asking you to live on the rest of your life for us. I get where you are coming from on an analytical side and it may come to that, but right now the goal is to keep the property and use the equity. We will see how it plays out.

Richard Phillip Lewis · Answer

@Andrew Thank you for the feedback. I will look into RELOC. The other challenge we have run into is the Beach property is one deeded property. Its composed of the Beach House AND a Garage Apartment. My mother and sister live in the garage apartment as their primary residence and we rent the Beach House. When a lender looks at the property they look at the property as ONE property not TWO SEPERATE Dwellings.

Dwayne Poster · Answer

what do you currently do for cash flow. Are you on a career path?

How to unlock $2 million in home equity?

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