I have one rental, what should I do next??

4 Replies

What’s up BP, I currently have one rental property that cash flows around $240 a month, the tenants are great and have already asked to renew the lease when it is up. I bought the house in 2014 and have about 90k in equity. Im ready to expand. So my question is what should I do next? I met with a local bank last week to see about doing a cash out refi. The bank said we could do 80% LTV, I would then use the funds to pay off some personal debt (credit card/ car note) which is around $400 in payments a month and then have 25-30k left over to put as down payment on another SF rental. My only concern is that, I would barely be breaking even on my current rental and my rate would go from 3.75% to above 5% The other idea I had was to sell current rental and 1031 into a multi family. It would most likely have to be out of state. Any advise on what I should do or what you would do is greatly appreciated. My ultimate goal is to retire from my 9-5 asap! Thank you, David

You realize that if you use your loan money from the refi to pay off a credit card and car, all you're doing is exchanging two debt payments for one...and making no progress.

You don't use loan money to pay off loans, you use profit and/or cash flow to pay them off.

You use loan money to invest with...and to use the money (profit and/or CF) from that investment to pay off the personal debt.

Originally posted by @Mark Sullivan :

Yeah, but if he's paying 10-12% on his personal debt and half that on a refi, it makes sense, no?

 No.  He is an investor.  You don't borrow money to pay off personal debt.  You borrow money to invest, and let the returns from the investment pay off the debt.

Saying that just because the interest rate might be lower, doesn't mean you exchange the debt.  The money he spent (cash) was free money.  It was CASH.  Regardless of the cost from the refi, it's still a cost, and he will have lost the opportunity to move ahead by investing it.  He's "spending it" on his debt...and he should be "using it" on his investments.

What you described as good, I refer to as " just a shinny object of distraction".