Looking to buy my second income property
Hey Scott,
I am new to investing and looking to buy my first flip this year with the intent to switch to buy and hold long term. I think you are in a good spot. If your intending on using the BRRRR strategy I would say you are well on your way. If you plan on keeping that first rental property and do not mind holding for the long run I would say use the equity. As I have heard many time on the BP PODCAST what good is equity if you can't use it. If it where me I would get a home equity line of credit (or some other form). If possible try to leverage that money for a down payment and rehab fees for your next property. Just imagine if you could get another $500 a month flowing in. Once you refinance the deal (if you did it right) you will be able to pull your money back out. You would be well on your way to financial freedom with $1000 monthly cash flow and 2 rentals. My intent is is do build up enough equity that I can use the line of credit to pay cash for my deals and not spend anytime seasoning (the 6-12 month you have to wait to refi).
Let's connect and stay in touch.
#2 General Landlording & Rental Properties Contributor
You should reconsider pulling the equity from the first home to reinvest. The 50K in dead equity with a opportunity value of 10% is costing you $416/month in lost income. To look at that a different way it is reducing your positive cash flow on the property from $500/month down to only $83/month. At that amount the property is not really worth holding onto as a investment since it is only your own cash that is generating the vast majority of your income. The property itself is not carrying it's weight.
Dead equity is not a wise investment strategy.
Thomas S,
How did you go about calculating the loss of income that the equity sitting in the property is costing? Is there a formula you use to determine that number?
Thank you Shane and Thomas for the feed back . I guess the next step is to find out how to best leverage the equity in the first unit to purchase the second . Im attending a free seminar in Ellicott city this weekend on income property. Hopefully I’ll get some good information.