Financing options for my next group of properties
Hello Bigger Pockets Community,
The advice I have read and received from this community has been instrumental in building my real estate portfolio. I wanted to run a scenario past those in the community to see what general consensus is.
I currently have 7 residential rental properties (4 duplexes, 3 single family) and a 14,000 sq foot industrial building (owned with partners for our HVAC business). One of my duplexes has enough equity to purchase another property. I also have a personal residence with equity.
I could refinance my duplex, and pull out roughly $35,000 to invest elsewhere. My cash flow on the property would go from $550.00 per month to around $390. I would then take the $35,000 to purchase another duplex in the same area, cash flowing around $325-$350 per month.
I could also refinance my primary residence and pull out $100,000 in cash to invest in more properties similar to that mentioned above.
My goal is to build my passive income stream, however, I have a wife and a three year old son, so managing risk is also important to me. Does it make financial sense to do two refinances to pull cash out and buy more properties? Am I greatly increasing the financial risk to my family?
Thank you so much for your help and advice.
Chris
Hi @Chris Collins!
I'm sure you could get a number of responses that are going to differ based on everyone's risk appetite, but based upon what you are describing and your familial situation my suggestion would be to continue to leverage as much as you can within your current rental properties and make your primary residence and the industrial warehouse untouchable. In an apocalyptic scenario where all is lost, your family remains protected with the roof over their head and you still have the space to continuing running your HVAC business. Some would argue that you are leaving too much equity sitting there doing nothing, but I could argue that it is providing you and your family one heck of an insurance policy.
@Brandon Roof Thank you for your reply, and I appreciate the advice. You basically nailed my dilemma. Leaving money on the table in a hot market (overheated or toppy maybe) is difficult for me to not convert into cash, because there is some risk to not turning that equity into cash as well. I suppose the best of both worlds maybe as you suggest, leverage the rentals and leave equity in the two properties that are more important to the financial support of my family, as we do not live off of the rental income, we just save it.
Hey, @Chris Collins! Congrats on the great start to your portfolio. I would consider looking at properties where you can utilize some form of delayed financing to pull your equity back out after purchase & stabelization. The deals may be harder to come by, but you would be able to return the capital to its original source and poitentially use it again.
Looking forward to following along!
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Overall you be increasing your cash flow, by adding more properties. I think cashing out on your 2 properties is a great option. You can have that extra cash flow pay back the debt you have taken out, or purchase more properties. Your tenants will be paying the mortgages off overtime, and when you sell, that will be a nest egg for your family.
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@Chris Collins I would be leery of maxing LTV on your primary. The other stuff id probably refinance
@David Acosta I have used the Brrrr strategy to purchase a number of my properties. I buy them on a line of credit, fix them up and refinance to pay the loc off. It has worked well for me.
The duplex with the equity was purchased the old fashioned way in 2016, 25% down. The area that it’s in has appreciated quite a bit over the past few years, so I was looking to pull the equity out to purchase another property without having to pull cash out of savings. Allowing me to accelerate the growth of my portfolio slightly.
@Caleb Heimsoth I’m leaning towards agreeing with you. Thank you for the reply!