What to do with $3 million in equity

Member since 2024 · 18 posts · 8 votes

Hi everyone

My business partner and I have 25 - 30 single-family homes and multi-tenant properties.

- All of the homes/properties have been renovated and have been in service for a number of years (meaning we have a strong history as successful property owners/investors)

- All of the homes are higher-end rentals in very good neighborhoods

- All but 4 homes are completely paid off with no mortgage overhead or LOC debt

- All homes have a very consistent rental history with very low vacancy

- All homes are turning a profit and our pre-door numbers are very good

Because the homes are almost completely paid off, we have a good deal of equity in just sitting around. We would prefer not to sell anything off at this time and plan on owning these properties for a few more decades (although we have considered selling some for various reasons).

A rough back-of-the-napkin calculation yields about $3.2 million in available equity across the entire portfolio.

Q1. What would you do with that equity?

Q2. How would we go about getting cash from the equity?

Q3. With interest rates as they are, and knowing they are probably going to start dropping over the next few quarters, is it best to wait on any kind of finance for a year'ish or are the rates not going to come down enough over that period to make a huge difference?

Thoughts?

Thanks in advance

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

If you don't want to sell the properties, then sell the equity. Take on cash (silent,...VERY silent) partners. They buy in and get part of the cash flow, you get the cash.

The alternative, and the best one at this point, is to refi. The cash you get coming out isn't income, it's a loan, so you have very favorable (non-existent) tax issues. If the properties can handle (as in still have positive CF) a 15 year mortgage, do that...and refi 2 properties every year. This way, you get that Freelike cash every year on 2 houses at a time, every year for 15 years. Then, since year 16 will have payoffs of the first pair of properties, you start the rotation all over again.

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Michael Gonda
OP
Member since 2024 · 18 posts · 8 votes
2y
Quote from @Rob K.:

Quote from @Michael Gonda:

Hi everyone
My business partner and I have 25 - 30 single-family homes and multi-tenant properties.
-  All of the homes/properties have been renovated and have been in service for a number of years (meaning we have a strong history as successful  property owners/investors)
- All of the homes are higher-end rentals in very good neighborhoods
- All but 4 homes are completely paid off with no mortgage overhead or LOC debt
- All homes have a very consistent rental history with very low vacancy
- All homes are turning a profit and our pre-door numbers are very good
Because the homes are almost completely paid off, we have a good deal of equity in just sitting around. We would prefer not to sell anything off at this time and plan on owning these properties for a few more decades (although we have considered selling some for various reasons).
A rough back-of-the-napkin calculation yields about $3.2 million in available equity across the entire portfolio.
Q1.  What would you do with that equity?
Q2. How would we go about getting cash from the equity?
Q3. With interest rates as they are, and knowing they are probably going to start dropping over the next few quarters, is it best to wait on any kind of finance for a year'ish or are the rates not going to come down enough over that period to make a huge difference?
Thoughts?

Thanks in advance

You know, I used to worry about an ever increasing deterioration in income to equity ratios but as I get older, I am more and more comfortable with dead equity. Yes, I can take cash out and try to invest in higher return projects, a sort of carry trade, but the reality is that increasing return on equity generally involves more risk.
So If I were you I would congratulate myself on success and question do you really want to take on additional risk or incur not insubstantial transaction costs to transition from what you have. Putting credit lines in place might make sense to have the capital available if a sure fire opportunity comes your way, but I would learn to get a certain level of comfort with paid off mortgages too.

Very good points Rob. This is something we are struggling with as well.
Our problem is that we are just on the edge of being in the perfect spot for retirement, but we are not exactly there either.
I really need to get out of the 9 to 5 rat race; this job is killing me (not exactly an exaggeration; my gig is too high-stress and not much fun). I am getting older and really don't want to live the corporate life anymore. I can grind out another year or two but I don't know if I can put another decade into it either.
Our problem is that our rental income is just short by about $50k bottom line profit a year for me to retire (keeping in mind that my business partner and I split all revenue). So we would have to add a number of doors to our portfolio and even if we could find good deals (which we don't see many of) it would take years and a good deal of work before we would have enough to put us into the comfort zone.
Using current equity feels like the only way to avoid another decade of corporate life. Not sure what other options there are but that's the only thing I can think of now that it was mentioned in this thread.
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Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
2y

Sounds like you could quit the stressful job now and finding a more relaxed job that pays 50k to make up the gap shouldn’t be that hard.
4 Reply
Brian Kloft
Investor · Arizona & Oregon Coast · Member since 2023 · 128 posts · 113 votes
2y
@Michael Gonda It sounds like we were/are in a very similar position to you. We sold our business back in 2010 and put all of that money into buying houses. We then stopped buying and worked more part time and lived off of our rental house income as it was all free and clear. A few years ago we decided that we needed to, and should have sooner, grow. We sold some of the houses and 1031'd them into small muti unit (2-5 unit) properties. These properties had good value add options as they were all ugly and still looked like the 70's inside. Like you, we fix up our units to be very nice inside to get the better tenants. Even with the properties having a low cap rate they still immediately were generating a higher income than we were getting from the single family rentals, plus once we renovated the units it was even better. The first one we did 3 years ago was a triplex and it is now generating 3 times the income that the house was. It was a straight swap $ for $. We are currently looking to expand again and are planning to tap into that equity that we have (similar to your equity ratio it sounds like) and buy some more small multi family properties as we find them. We want to keep our portfolio loan to value ratio small as we also like the safety of it. You could also sell some of the houses and do 1031 exchanges into multi tenant properties. If you found a larger property, say a 20-30 unit property, you could sell multiple houses and 1031 them into it or do a mix of houses and a loan. The beauty of the houses for a multi tenant property is that often the numbers do not have to be great on what you are buying, but you will still see a bump in income. I will send you a pm so that we can chat in more detail about what we are doing and actual numbers.
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y
Quote from @Michael Gonda:

Hi everyone
My business partner and I have 25 - 30 single-family homes and multi-tenant properties.
-  All of the homes/properties have been renovated and have been in service for a number of years (meaning we have a strong history as successful  property owners/investors)
- All of the homes are higher-end rentals in very good neighborhoods
- All but 4 homes are completely paid off with no mortgage overhead or LOC debt
- All homes have a very consistent rental history with very low vacancy
- All homes are turning a profit and our pre-door numbers are very good
Because the homes are almost completely paid off, we have a good deal of equity in just sitting around. We would prefer not to sell anything off at this time and plan on owning these properties for a few more decades (although we have considered selling some for various reasons).
A rough back-of-the-napkin calculation yields about $3.2 million in available equity across the entire portfolio.
Q1.  What would you do with that equity?
Q2. How would we go about getting cash from the equity?
Q3. With interest rates as they are, and knowing they are probably going to start dropping over the next few quarters, is it best to wait on any kind of finance for a year'ish or are the rates not going to come down enough over that period to make a huge difference?
Thoughts?

Thanks in advance

Ok so you refi and then what seems to me it only makes sense if you can generate quite a bit more in income than the 7% rate your going to be paying.. what would you invest in ?? Also keep in mind your going to be ready for round two of cap ex in the coming years probably 10 to 30k per house .. I can see pulling the cash out if your going to buy a business that can make you significant money.. but to just pull it out to have it not sure why you would do that.
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2 Reply
Peter W.
Member since 2020 · 351 posts · 329 votes
2y
Quote from @Michael Gonda:

Thanks so much Joe
That second option is really looking very interesting; frankly, I hadn't thought of that. I was thinking of doing a block refi on all of the homes but maybe doing 2 houses at a time is the better option now that you mention it.
I guess that would mean each property would basically be used as income for that year, then? Like if we have a $200k refinance we could take that money as income without the tax hit and as long as the debt service is covered by the rental amount we would be covered.
Am I reading that correctly?

And how common is this approach? Is this something that people do a lot? That's a new idea to me.
The only stickler to watch out for is if you aren't reinvesting the money back into your business (you would have to double check the tax law on what that curtails) the interest on that loan isn't tax deductible. Minor detail to factor into your conversation. Otherwise I don't have anything useful to add. Double check with your tax attorney on various tax implications.
1 Reply
Shafi Noss
Lender · Nationwide · Member since 2018 · 571 posts · 310 votes
2y
It would be useful to know what state you are in.

Separately, if you're getting $1400 a month on a 230K house with very low vacancy, there may be room to increase rents.

You said you were short by $50k a year? If you could optimize by $200 a door over 25 units, that would be over $60k a year. That might get the job done.

But like Jay said I would not underestimate CapEx and unit turn costs.

Alternatively, you could cash out a little bit, say $500k, and do private lending on your area of expertise, single family homes. You can earn $50k a year doing that, even after paying 7%, and you'll earn even more as rates go down. Again, would be helpful to know the state.
0 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y
Quote from @Peter W.:

Quote from @Michael Gonda:

Thanks so much Joe
That second option is really looking very interesting; frankly, I hadn't thought of that. I was thinking of doing a block refi on all of the homes but maybe doing 2 houses at a time is the better option now that you mention it.
I guess that would mean each property would basically be used as income for that year, then? Like if we have a $200k refinance we could take that money as income without the tax hit and as long as the debt service is covered by the rental amount we would be covered.
Am I reading that correctly?

And how common is this approach? Is this something that people do a lot? That's a new idea to me.
The only stickler to watch out for is if you aren't reinvesting the money back into your business (you would have to double check the tax law on what that curtails) the interest on that loan isn't tax deductible. Minor detail to factor into your conversation. Otherwise I don't have anything useful to add. Double check with your tax attorney on various tax implications.

yup I believe loans in excess of your basis the interest is not deductable.. and from what is posted sounds like that would for sure be the situation .. so maybe if he chooses to take the loans he needs to only borrow his basis.. on each property.
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0 Reply
Eric Bilderback
Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
2y
@Account Closed said what I was going to.
I am in a very similar situation. I changed careers into something that has given me more freedom (realtor) but as I don't have enough to quit I still have a few toes in the rat race. Not ideal but overall much better.. I still have a bunch of kids at home not sure where you are it in that regard but one thing you may consider is just taking a year off. Take a semi-retirement and get a gig that is a more chill when you come back. Keep updating us what your doing I'll be interested to watch you and to hopefully suggestions I can ponder for myself.
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Gino BarbaroPro Member
Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
2y
@Michael Gonda

It ultimately comes down to what you want to achieve with the equity. Do you want to have a very low LTV, with steady cash flow? Or do you want to tap into the equity tax deferred and re purpose into other assets? Grow or stay the course.

If you think there are going to be opportunities for great deals, then refinancing some equity out would be a good idea. If you want to scale to bigger assets, then selling some and rolling the money into that asset may make sense.

I would talk to @Dave Foster about 1031s, and look over all options.
I know that I would refi the equity and buy the next deal. That i how we've been able to scale to over 1,700 units without investors, by refinancing our deals and repurposing the equity
God Luck!!
Auguri
Gino
Podcast Guest on Show The “Conveyor Belt” System That’ll Build You a BIG Rental Portfolio Quickly
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
2y
Quote from @Ken Buck:

Quote from @Joe Villeneuve:

Quote from @Michael Gonda:

Thanks so much Joe
That second option is really looking very interesting; frankly, I hadn't thought of that. I was thinking of doing a block refi on all of the homes but maybe doing 2 houses at a time is the better option now that you mention it.
I guess that would mean each property would basically be used as income for that year, then? Like if we have a $200k refinance we could take that money as income without the tax hit and as long as the debt service is covered by the rental amount we would be covered.
Am I reading that correctly?

And how common is this approach? Is this something that people do a lot? That's a new idea to me.
It's one of the things I do/teach as part of a system.
Yes, that's tax free income, from two properties a year...continuously. Don't forget the cash flow that's left from those two properties, and all the others.

And do what with the cashout? Skimming through here so pls excuse if I missed that part
Whatever you want. Treat it as your income...tax free.
1 Reply
Michael Gonda
OP
Member since 2024 · 18 posts · 8 votes
2y
Quote from @Account Closed:

Sounds like you could quit the stressful job now and finding a more relaxed job that pays 50k to make up the gap shouldn’t be that hard.

Yeah, my problem with that is completely in my own head. I make what a lot of people would think of as "stupid good" money at my current job and it feels like a mistake to keep working similar hours for a lot less pay.
But I hear you, I might need to bale out of the current gig for no other reason than to lower my stress level. Retiring altogether is the best option, but doing something else might be worth it for my own mental health.

I thought about getting into the property management side of things for other investors because I have so much experience on that side of things, but I really have no idea how to even start with that.
Anyway, thanks for the note
0 Reply
Michael Gonda
OP
Member since 2024 · 18 posts · 8 votes
2y
Quote from @Brian Kloft:

@Michael Gonda It sounds like we were/are in a very similar position to you. We sold our business back in 2010 and put all of that money into buying houses. We then stopped buying and worked more part time and lived off of our rental house income as it was all free and clear. A few years ago we decided that we needed to, and should have sooner, grow. We sold some of the houses and 1031'd them into small muti unit (2-5 unit) properties. These properties had good value add options as they were all ugly and still looked like the 70's inside. Like you, we fix up our units to be very nice inside to get the better tenants. Even with the properties having a low cap rate they still immediately were generating a higher income than we were getting from the single family rentals, plus once we renovated the units it was even better. The first one we did 3 years ago was a triplex and it is now generating 3 times the income that the house was. It was a straight swap $ for $. We are currently looking to expand again and are planning to tap into that equity that we have (similar to your equity ratio it sounds like) and buy some more small multi family properties as we find them. We want to keep our portfolio loan to value ratio small as we also like the safety of it. You could also sell some of the houses and do 1031 exchanges into multi tenant properties. If you found a larger property, say a 20-30 unit property, you could sell multiple houses and 1031 them into it or do a mix of houses and a loan. The beauty of the houses for a multi tenant property is that often the numbers do not have to be great on what you are buying, but you will still see a bump in income. I will send you a pm so that we can chat in more detail about what we are doing and actual numbers.

Thanks, Brian, yes I would like to hear more about your strategy. Got your PM, let's talk a bit.

Thanks again
0 Reply
Michael Gonda
OP
Member since 2024 · 18 posts · 8 votes
2y
Quote from @Gino Barbaro:

@Michael Gonda

It ultimately comes down to what you want to achieve with the equity. Do you want to have a very low LTV, with steady cash flow? Or do you want to tap into the equity tax deferred and re purpose into other assets? Grow or stay the course.

If you think there are going to be opportunities for great deals, then refinancing some equity out would be a good idea. If you want to scale to bigger assets, then selling some and rolling the money into that asset may make sense.

I would talk to @Dave Foster about 1031s, and look over all options.
I know that I would refi the equity and buy the next deal. That i how we've been able to scale to over 1,700 units without investors, by refinancing our deals and repurposing the equity
God Luck!!
Auguri
Gino

Thanks Gino

One of the things we have considered is taking the refinace and using that for a much larger building (like a 20 + unit or something). We have been doing the SFH and smaller 3 or 4 unit properties for a long time but we don't have any experience with larger buildings, how do you go about finding larger projects like this?

I see some stuff showing up from larger commercial real estate agencies but haven't looked into that much, just wondering where to start looking.
Thanks again
0 Reply
Michael Gonda
OP
Member since 2024 · 18 posts · 8 votes
2y
Quote from @Shafi Noss:

It would be useful to know what state you are in.

Separately, if you're getting $1400 a month on a 230K house with very low vacancy, there may be room to increase rents.

You said you were short by $50k a year? If you could optimize by $200 a door over 25 units, that would be over $60k a year. That might get the job done.

But like Jay said I would not underestimate CapEx and unit turn costs.

Alternatively, you could cash out a little bit, say $500k, and do private lending on your area of expertise, single family homes. You can earn $50k a year doing that, even after paying 7%, and you'll earn even more as rates go down. Again, would be helpful to know the state.

Very good points...

And we are in Pittsburgh PA (should have mentioned that before).
Some of our rents are a touch low yes, but a good number of them are above the area average... it's hard to put all of this into a single post because we have everything from small 1 bedroom efficiency apartments to large 3 bedroom/2 bath homes with additions, big yards and multiple space garage areas. Rents are all over the map in our portfolio, so that $1400 a month number is kind of just a placeholder for the range.

We are really interested in offering private lending but not really sure where to start. We know how it works from the borrower side but we are not sure how things work on the other side of the table like how to finding borrowers etc.
0 Reply
Michael Gonda
OP
Member since 2024 · 18 posts · 8 votes
2y
Quote from @Jay Hinrichs:

Quote from @Michael Gonda:

Hi everyone
My business partner and I have 25 - 30 single-family homes and multi-tenant properties.
-  All of the homes/properties have been renovated and have been in service for a number of years (meaning we have a strong history as successful  property owners/investors)
- All of the homes are higher-end rentals in very good neighborhoods
- All but 4 homes are completely paid off with no mortgage overhead or LOC debt
- All homes have a very consistent rental history with very low vacancy
- All homes are turning a profit and our pre-door numbers are very good
Because the homes are almost completely paid off, we have a good deal of equity in just sitting around. We would prefer not to sell anything off at this time and plan on owning these properties for a few more decades (although we have considered selling some for various reasons).
A rough back-of-the-napkin calculation yields about $3.2 million in available equity across the entire portfolio.
Q1.  What would you do with that equity?
Q2. How would we go about getting cash from the equity?
Q3. With interest rates as they are, and knowing they are probably going to start dropping over the next few quarters, is it best to wait on any kind of finance for a year'ish or are the rates not going to come down enough over that period to make a huge difference?
Thoughts?

Thanks in advance

Ok so you refi and then what seems to me it only makes sense if you can generate quite a bit more in income than the 7% rate your going to be paying.. what would you invest in ?? Also keep in mind your going to be ready for round two of cap ex in the coming years probably 10 to 30k per house .. I can see pulling the cash out if your going to buy a business that can make you significant money.. but to just pull it out to have it not sure why you would do that.

The reason I am thinking this is a good idea is because I can use it for life... meaning I can get away from this 9 to 5 BS and use the equity cash out for living expenses (obviously in conjunction with cash from my stock holdings as well).
The thinking is that we pull out equity at 6 <> 7 % and invest in safe-ish grow stocks returning 10 or 11%. That 4% is better than the equity just sitting there doing nothing.

Or we take that equity and use some of it for private lending at 15% or so which is even better (although I am not sure how to get that business off the ground just yet).
0 Reply
Gino BarbaroPro Member
Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
2y
@Michael Gonda
It is a bit different in the commercial space, where you need to cultivate broker relationships.
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James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Joe Villeneuve:

Quote from @Ken Buck:

Quote from @Joe Villeneuve:

Quote from @Michael Gonda:

Thanks so much Joe
That second option is really looking very interesting; frankly, I hadn't thought of that. I was thinking of doing a block refi on all of the homes but maybe doing 2 houses at a time is the better option now that you mention it.
I guess that would mean each property would basically be used as income for that year, then? Like if we have a $200k refinance we could take that money as income without the tax hit and as long as the debt service is covered by the rental amount we would be covered.
Am I reading that correctly?

And how common is this approach? Is this something that people do a lot? That's a new idea to me.
It's one of the things I do/teach as part of a system.
Yes, that's tax free income, from two properties a year...continuously. Don't forget the cash flow that's left from those two properties, and all the others.

And do what with the cashout? Skimming through here so pls excuse if I missed that part
Whatever you want. Treat it as your income...tax free.

Hey, I'll be back in TN this December...... Casino boats..... just saying...... I'm happy to help "mentor" how to enjoy it, lol.
0 Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
2y
Quote from @James Hamling:

Quote from @Joe Villeneuve:

Quote from @Ken Buck:

Quote from @Joe Villeneuve:

Quote from @Michael Gonda:

Thanks so much Joe
That second option is really looking very interesting; frankly, I hadn't thought of that. I was thinking of doing a block refi on all of the homes but maybe doing 2 houses at a time is the better option now that you mention it.
I guess that would mean each property would basically be used as income for that year, then? Like if we have a $200k refinance we could take that money as income without the tax hit and as long as the debt service is covered by the rental amount we would be covered.
Am I reading that correctly?

And how common is this approach? Is this something that people do a lot? That's a new idea to me.
It's one of the things I do/teach as part of a system.
Yes, that's tax free income, from two properties a year...continuously. Don't forget the cash flow that's left from those two properties, and all the others.

And do what with the cashout? Skimming through here so pls excuse if I missed that part
Whatever you want. Treat it as your income...tax free.

Hey, I'll be back in TN this December...... Casino boats..... just saying...... I'm happy to help "mentor" how to enjoy it, lol.
My sister lives in TN, maybe I'll help. No wait, December, she'll be here in MI. I guess I'll miss her.
0 Reply
Justin R.Pro Member
Rental Property Investor · San Anselmo · Member since 2015 · 659 posts · 600 votes
2y
Great question, and even better position to be in!
I was in a similar position a few years ago. I decided I was going to trade in (sell off) many of my SFDs and reinvest into MFDs. My position was based upon my previous experience, and the time needed to manage those single assets. The amount of rooms, heating systems, separate property tax bills, insurance premiums, etc, etc.
I understand you are not necessarily wanting to sell, but perhaps tap into the equity (refinance, portfolio loan, partnership) and parlay the equity into fewer, larger properties.
Take a peak into portfolio or blanket loans. Some regional banks and credit unions will do them. They will group all of your properties into one asset, and give you one large loan. Much more simple (one monthly mortgage payment, and one 1098 each year!) The drawback is the challenge of selling a single property out of that grouping.
Last note, I don't like fully paid off properties. If you ever get sued, and a contingency based attorney looks at your property, and doesn't see a note attached, that is a low hanging, ripe fruit. Even a real small note offers some level of liability diversion in my opinion.
Cheers!
2 Reply
Ken BuckPro Member
Specialist · Crested Butte, CO · Member since 2015 · 105 posts · 25 votes
2y
Quote from @Michael Gonda:

Quote from @Account Closed:

Sounds like you could quit the stressful job now and finding a more relaxed job that pays 50k to make up the gap shouldn’t be that hard.

Yeah, my problem with that is completely in my own head. I make what a lot of people would think of as "stupid good" money at my current job and it feels like a mistake to keep working similar hours for a lot less pay.
But I hear you, I might need to bale out of the current gig for no other reason than to lower my stress level. Retiring altogether is the best option, but doing something else might be worth it for my own mental health.

I thought about getting into the property management side of things for other investors because I have so much experience on that side of things, but I really have no idea how to even start with that.
Anyway, thanks for the note

I hear you on reducing stress, not sure of your age, but I won't 'go there' on the stress and quality of life side of things....I'm more patient than I used to be for sure.
As far as what could be next - sounds incredibly non sensical and irresponsible - yet, move it all including yourself to a Colorado ski town. It's been a great move for me and my toys list constantly outgrows my to do list...ordering fly fishing towers for my new raft as we speak. Nonsensicle? hardly, the market does fluctuate here but it's the most dire supply and demand market I've seen (other than some CA beach towns). Land is scarce, development is limited by resources and decade after decade the millionires are kicked out by the billionaires..truly.
Anyway, that's my view, it's a long term hold view in an idyllic spot that few people will be able to attain ownership in.
1 Reply
Sofia Paczynski
Member since 2018 · 1 post · 0 votes
2y
Wow, congrats on your portfolio! You could be a private money lender on real estate deals that need funding, and get double-digit returns on your money.

If you are interested in more information on this, let me know. I can explain more in detail.

0 Reply
Jamie DietzBusiness Member
Lender · Pittsburgh, PA · Member since 2015 · 176 posts · 90 votes
2y
Great problem! I live in Pittsburgh as well. As my wife and I started to think about retirement we pivoted away from rentals to private lending so we could have more flexibility and less management responsibilities. Private lending can be great cash flow if done correctly. However, its not as easy as some think. Happy to chat if interested in learning more.
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1 Reply
Daniel D Huffmaster
Member since 2021 · 2 posts · 1 vote
2y
Quote from @Joe Villeneuve:

If you don't want to sell the properties, then sell the equity. Take on cash (silent,...VERY silent) partners. They buy in and get part of the cash flow, you get the cash.
The alternative, and the best one at this point, is to refi. The cash you get coming out isn't income, it's a loan, so you have very favorable (non-existent) tax issues. If the properties can handle (as in still have positive CF) a 15 year mortgage, do that...and refi 2 properties every year. This way, you get that Freelike cash every year on 2 houses at a time, every year for 15 years. Then, since year 16 will have payoffs of the first pair of properties, you start the rotation all over again.

0 Reply
Billy Smith
Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes
2y
Quote from @Rob K.:

Quote from @Michael Gonda:

Hi everyone
My business partner and I have 25 - 30 single-family homes and multi-tenant properties.
-  All of the homes/properties have been renovated and have been in service for a number of years (meaning we have a strong history as successful  property owners/investors)
- All of the homes are higher-end rentals in very good neighborhoods
- All but 4 homes are completely paid off with no mortgage overhead or LOC debt
- All homes have a very consistent rental history with very low vacancy
- All homes are turning a profit and our pre-door numbers are very good
Because the homes are almost completely paid off, we have a good deal of equity in just sitting around. We would prefer not to sell anything off at this time and plan on owning these properties for a few more decades (although we have considered selling some for various reasons).
A rough back-of-the-napkin calculation yields about $3.2 million in available equity across the entire portfolio.
Q1.  What would you do with that equity?
Q2. How would we go about getting cash from the equity?
Q3. With interest rates as they are, and knowing they are probably going to start dropping over the next few quarters, is it best to wait on any kind of finance for a year'ish or are the rates not going to come down enough over that period to make a huge difference?
Thoughts?

Thanks in advance

You know, I used to worry about an ever increasing deterioration in income to equity ratios but as I get older, I am more and more comfortable with dead equity. Yes, I can take cash out and try to invest in higher return projects, a sort of carry trade, but the reality is that increasing return on equity generally involves more risk.
So If I were you I would congratulate myself on success and question do you really want to take on additional risk or incur not insubstantial transaction costs to transition from what you have. Putting credit lines in place might make sense to have the capital available if a sure fire opportunity comes your way, but I would learn to get a certain level of comfort with paid off mortgages too.

Agree enjoy the free cash flow why take on extra risk ?I like paid off SFH in a large metro area works for me. I have one mortgage left when that is paid off I may look at another SFH in my zone of knowledge .
1 Reply
Daniel D Huffmaster
Member since 2021 · 2 posts · 1 vote
2y
Quote from @Joe Villeneuve:

If you don't want to sell the properties, then sell the equity. Take on cash (silent,...VERY silent) partners. They buy in and get part of the cash flow, you get the cash.
The alternative, and the best one at this point, is to refi. The cash you get coming out isn't income, it's a loan, so you have very favorable (non-existent) tax issues. If the properties can handle (as in still have positive CF) a 15 year mortgage, do that...and refi 2 properties every year. This way, you get that Freelike cash every year on 2 houses at a time, every year for 15 years. Then, since year 16 will have payoffs of the first pair of properties, you start the rotation all over again.
Joe,
Your a genius, I'm so glad I read this post. I've been trying to figure out how to retire and still leave everything for my boys. Been praying about this for over a year. I was looking at selling a few properties and moving that into syndication or lending the funds. But it all seems a little risky. I have 12 rentals and most of them have massive equity. Thought about using that equity to buy a larger apartment complex but from what I've seen most of them in my price range <3m barely service the debt.
But, doing a cashout refi on 1 property per year gives me about 10k per month for at least 12 years. I'm coining this strategy as CORR, Cash Out Refi Retire.
Im sure there are many people doing this, ive just never heard of it. I probably cant do the 15 year refi and i do see how that is super beneficial when you restart with the 1st property again, ill call that recycle. Ill retire in just a few months with CORR. Lol
thank you Joe

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