Question for Real Estate Investment Guru's

[Dano Neslen]

Good Afternoon,

Long time lurker here on the forums and decided to jump in and ask for some assistance from the experts.

I reside in California and am 47 years of age.

Over the course of the year 2020, I purchased 3 separate single family homes for rental purposes in Alabama as investments.

House #1 was purchased for $121,000 and is now valued at $168,000 with approximately $90,000 in equity. 30 year loan of about $610.00 a month.

House #2 was purchased for $150,000 and is now valued at $227,000 with approximately $118,000 in equity. 30 year loan of about $795.00 a month.

House #3 was purchased for $115,000 and is now valued at $160,000 with approximately $73,000 in equity. 30 year loan of about $583.00 a month.

All three are rented out with long term tenants and I profit about $1400.00 a month across all three properties.

My long term plan is to acquire additional properties for investment purposes. This is the nest egg for my family and I don't really want to dip into savings to purchase more homes.

Can some please give me their recommendations on how to proceed ?

Should I do a cash out refinance and use some of the equity to buy a fourth property.

Or should I cash out re-fi and pay off one of the properties outright?

Thanks so much in advance for any kind advice you offer.

New Landlord

[Jon Schwartz]

Originally posted by @Dano Neslen:

Good Afternoon,

Long time lurker here on the forums and decided to jump in and ask for some assistance from the experts.

I reside in California and am 47 years of age.

Over the course of the year 2020, I purchased 3 separate single family homes for rental purposes in Alabama as investments.

House #1 was purchased for $121,000 and is now valued at $168,000 with approximately $90,000 in equity. 30 year loan of about $610.00 a month.

House #2 was purchased for $150,000 and is now valued at $227,000 with approximately $118,000 in equity. 30 year loan of about $795.00 a month.

House #3 was purchased for $115,000 and is now valued at $160,000 with approximately $73,000 in equity. 30 year loan of about $583.00 a month.

All three are rented out with long term tenants and I profit about $1400.00 a month across all three properties.

My long term plan is to acquire additional properties for investment purposes. This is the nest egg for my family and I don't really want to dip into savings to purchase more homes.

Can some please give me their recommendations on how to proceed ?

Should I do a cash out refinance and use some of the equity to buy a fourth property.

Or should I cash out re-fi and pay off one of the properties outright?

Thanks so much in advance for any kind advice you offer.

New Landlord

Dano,

Not a guru here, but I am a fellow Californian.

I'd just keep one thing in mind:

Pay attention to your return on equity, which is:

Net profits / Equity across your portfolio.

Right now it looks like:

($1400 * 12 months) / ( $90,000 + $118,000 + $73,000 ) = $16,800 / $281,000 = 5.98%

So when considering your two options, cash-out refi and buy vs. cash-out refi and payoff, calculation your return on equity for each option to the best of your ability. This metric should be very helpful in your making the best decision.

Good luck!

Jon