What to do with my 100k equity?

26 Replies

OK BP fam, here is my situation:

3/2 SFH rental that currently rents for $1700/month, but will demand $2100/month beginning 02/01/2019.

I owe 220k. 

I can sell tomorrow for 320k on the low side.

***I've considered selling, upping rent, HELOC. Thoughts?***

@Brandon Graves how does it cashflow? If it's a positive cashflow property, I would HELOC and reinvest

@Jason DiClemente , Mortgage: $1420/month. So, with rental up to $2100/month, it's positive $680/month minus Cap Ex's.

@Jason DiClemente , Ok, noted. Thanks for the advice. Any preference on where to take the equity? We have other great rentals here, I'm just wrestling with the fact that everything is back on the high end...

@Brandon Graves that's the great thing about the LOC. It costs you nothing unless you use it. Where to use it would depend on your personal goals, so I couldnt tell you what to do.

@Jason DiClemente , Awesome. Great insight. And for the LOC, that's a conversation with the bank that currently owns my mortgage, correct?

LOC's are fairly cheap. When I did mine it was only $300. You won't get the full 100k, only a percentage of it, I think mine was 70%. I've been having a 45k LOC for over a year now and never used it. Still waiting for the right deal and it's nice knowing you have it in your back pocket.

@Justin Guidry , how long is the LOC good for? Are your plans to use LOC as down payment towards next property I'm assuming? If so, do you use different financing (bank) for the remainder of that next purchase?

I would sell in a heart beat. There is no way I would invest in a property worth $320K with rent at a measly $2100. Your money is not earning it's keep.

@Justin Guidry you get 70% of the appraised value minus mortgage balance, not 70% of the equity. That can be a big difference on the high end. OP you don’t have to get the heloc from your mortgage holder. Many lenders will do it.

@Thomas S. , even though I've only parked 0$ (VA loan) of my money into it and 235k of the bank's funds? Also, @Max T. , I thought equity = appraised value minus owed balance? Am I missing something there?

@Brandon Graves yes/maybe. When the big number gets multiplied by .7 .

@Brandon Graves The LOC is good as long as you own the house. There is a $50 annual charge. I got mine at my local bank were my checking account is.

@Max T. is correct..... His LOC would only be $4,000?? 70% - 320k = 224k - 220k = 4,000

@Thomas S. has a good point. Even at 2,100/mn you aren't hitting the 1% rule.

Was it a primary residence before you started renting it out?

@Brandon Graves In NC you can go to any bank. It doesn't have to be the one your mortgage is with. I prefer to use a smaller local bank. Better terms that are negotiable and anything under 100k is kept in house with much less hassle.

Just a thought on the equity. It's 100k in equity, but if you sell, it will be much less than that after you deduct fix up costs, real estate commissions, closing costs and capital gains taxes (unless you lived there 2 out of the last 5 years.
Before you decide to sell, you might figure out what your actual net costs will be.

@Brandon Graves with the penfed 80% loc your numbers will look like this. 320k x .8 = 256k - 224k = 32k loc If you sell, you would be looking at 320k - 224k = 96k - 25k (realtor / loan costs) = 71k. Hard choice. If you have somewhere better to put that money, maybe selling isn’t a bad idea after all.
@Jason DiClemente do most banks allow LOC on investment properties? I live in CA and large banks only allow LOC on primary Home. I haven’t try small banks.
@Jojo Lee From what I’ve seen in Hawaii most banks will only do helocs on primary residences. But like someone else mentioned, there are banks/CUs that will do helocs on investment properties. Also there are CUs, like Wailuku Federal Credit Union, that offer 90% LTV helocs.
@Jojo Lee I wouldn't say most banks, but some do. Penfed credit union was one mentioned earlier that does. It's mostly local banks and credit unions
@Brandon Graves I’m in almost the exact same situation. My past primary residence i purchased with a VA loan. I paid 250K for it and my agent estimated I could sell for around 410K now. I pay 1400/mo mortgage and it rents for 2800/mo. We decided we are going to do a HELOC instead of sell for two reasons. One, we love the cash flow and two we love the location so much we may move back there someday. That being said, if the markets puts that house up into the 500s we will sell and 1031 into a multi family somewhere.

You have a few options and all depends on which route you want to go in your investment career.

Can sell sell and 1031 into a multifamily with better cash flow.

Can heloc and since it is an investment property you can write off the interest on payments and put down payment on next investing property

Can refinance but and pull cash out but most likely won't cash flow unless you raise the rents higher than 2100.

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