How to best utilize my equity?

Question

hi BP community, i am looking for recommendations on how to best use my equity I have in some of my rental properties.

I have 4 properties that have a combined equity of about $700k.  I have 2 30 year fixed mortgages totaling about $200k.  So a total value of about $900k.  These properties produce $90k a year in rent.  They are A/B class rentals.

I feel I could better maximize all this equity but what is the best way to do That when its spread amoung 4 properties?

Thanks for any ideas and recommendations!

Dave Foster · Answer

@Aaron Cooper, Congratulations, I think you've grown beyond the one question/one answer solution!  When you have the advantage of being in as strong and flexible a position as you are you can begin to explore multi faceted approaches.  I'm guessing from the success of your property management company that this is your growth war chest.   As such you can deploy it in a number of ways that can steer toward.  I would encourage you to explore with your advisors multiple course of consolidation and maximization of leverage on larger properties, carving out cash flow assets (passive and active) that are debt free, some potential targets for future conversion to your primary residence.  Each of these designed for:

1. Organic portfolio growth

2. Recession resistance

2. Tax advantaged growth

3. Retirement and next-generational preservation

Plan for the best, prepare for the worst.  You've got some great options open to you to start shaping the future now.

Arianne L. · Answer

@Aaron Cooper Some options I can think of. And these options probably don't scratch the surface

1. Refinance at 70-80% LTV. You'd have loan origination charges and the cashflow would decrease but you should be able to invest what equity you take out for a bigger % annual return than the 4-5% you're trading off.

This will get you 490-560k equity in cash that you could reinvest (your own multifamily acquisition, other multifamily syndications, private lending, or purchase other SFRs / 2-4 units, or more active models like flipping houses).

2. Get a line of credit on the rentals. LTV will depend on the bank/portfolio lender. Same as above but instead of the fixed rate annually. The rate is adjustable though so you might not have the same rate in 5-10 years.

3. Sell all 4 properties and 1031 exchange into a larger property - likely multifamily or commercial. Or depending on what size your multifamily purchase is, you could exchange 1 property for 1 larger multi, etc.

4. Sell the 4 properties outright and use the cash to invest. That'll be a lot of capital gains this year. I recommend the 1031 option or spread them out across years.

Thomas S. · Answer

Liquidate and invest with minimum down on a larger complex. If you keep the equity to a bare minimum you will maximise your cash flow. If you have surplus equity and do not want to invest in additional properties give it to your financial advisor to invest. Any returns it earns will be greater than leaving it as dead equity in a property.

How to best utilize my equity?

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