Finance Strategy Question

[Garrett Stembridge]

I owe $100K on a rental I own in my name  and also have approx $100K in cash.  I’ve been wanting to star an llc and move it under that, but I would burn my cash reserves to do it.  Would it be better to just keep it as is so that I have cash available for another rental, or use the cash to pay it off and move it under an llc, and then try to cash out refinance?   I also currently have a $35K Heloc available (4.5%) on the rental that would close if I paid of the mortgage.  

[Rolly Weaver]

Why do you want to put it in an LLC?

If you only have one rental, its not the end of the world to keep it in your name.

[Kerry Baird]

I do have an LLC set up, and the general idea is that you only could see the benefit of the entity protection when you have $250k in equity. Insurance works really well. If I were in the same situation, I'd contact my CPA and lawyer for advice; and likely leave it alone for now.

[Garrett Stembridge]

Quote from @Rolly Weaver:

Why do you want to put it in an LLC?

If you only have one rental, its not the end of the world to keep it in your name.

I guess part of the question was at what point do you want to start an llc.  I feel comfortable with my one rental being under my name, but am actively trying to purchase another one. One of my concerns is that if I do put it under an llc, how difficult it’s it to get a back to do a cash out refi with a newly formed llc.  

[Garrett Stembridge]

Quote from @Kerry Baird:

I do have an LLC set up, and the general idea is that you only could see the benefit of the entity protection when you have $250k in equity. Insurance works really well. If I were in the same situation, I'd contact my CPA and lawyer for advice; and likely leave it alone for now.

Thanks you.  I was hoping to get more insight on at what point should you consider an llc.  I’ve never heard anyone put a number on it, but I think the 250K seems reasonable.  

[Kerry Noble Jr]

id personally leave it......keep the cash reserve.....

[Denver McClure]

@Garrett Stembridge not a lawyer or CPA, but I would state than a great insurance policy is adequate for protection vs an LLC at this stage. That's what I use for my investment properties.

As a Investment Advisor, I'd caution you on holding so much in cash while inflation continues to be high over the next few years. Consider investing that 100K in a Margin Taxable account, utilizing income producing products (Bonds, Dividend ETFs, REITS, etc) to hedge yourself against inflation. In the right Margin account (I only recommend Interactive Brokers for my clients), you can borrow up to 50% of your account value in cash to use on another rental deal. Interest rates are anywhere between 1.66% to 2.33%. 

Just like a mortgage, it's great to utilize leverage to acquire more deals using less of your own cash. 

[Basit Siddiqi]

I would not pay off any mortgage that you have at the moment.

The rate on that mortgage is likely lower than what the current market is offering.

[AJ Wong]

Greetings. What are the terms of the current mortgage? And the equity of your primary residence? 

The HELOC is a favorable rate and would enable potential re-leveraging as a down payment for a new rental, investment property or additional income producing unit (ADU) to the existing home.

At 20% down (on a seller carry for example) the HELOC would cost $150+/- per month (but could and is likely variable). With a purchase budget of +/- $185k the mortgage would run $750-900 depending on terms and PITI on the new property including the HELOC payment would run $1150-1400 range. There are some properties out there that would carry costs or if STR eligible could offer a net positive return on $0 cash out of pocket. Cash on cash of $0 for $750-1500 per month sounds like a good investment?

  Additionally you can utilize some of your $100k reserves to stretch the budget, offer more down or improve a less expensive property. 

You're in an excellent position for portfolio growth. Look into creative and alternative financing options to minimize down payments and maximize leverage. 

Message me to discuss strategy or specific investment opportunities throughout Oregon. 

Happy Hunting!