Rookie seeking advise

5 Replies

I am new here, it seems like a lot of smart folks here. I purchased 3 single family homes in a cheaper area than where I sold my home using a 1031 property exchange. It has been 4 years now and all three have gained good equity, approximately 100,000 ea. Each property basically pays for itself with a small amount profit each month. How can I make these work for me to acquire a multi- family unit with out selling any ? Thanks in advance Robert

Hi Robert,

If you wanted to keep the 3 houses and buy a multi-family your only option is to cash out refinance or pull an equity line out of the homes and use it to purchase the multi. I personally do not like this idea. You are getting more debt on your existing cash flowing homes to buy another property to get more debt. Your houses that were positive each month now probably be negative. This, in my opinion, is the incorrect way to leverage.

So what are your options?  You can sell the house and do a 1031into a multi or you can do nothing.  You need to look at your total risk in your portfolio at all times.  

Talk to a lender. You can use the equity to create a line of credit and then use that line of credit for new purchases.

The bank will typically loan you a percentage of your equity. If you have three homes with $100,000 equity each, that's a total equity of $300,000. If the bank is willing to loan you 80% of your equity, that would be $240,000 you could borrow. I don't recommend borrowing more than 50 - 60% of your equity to keep your risk lower.

A line of credit is similar to a credit card because you only pay interest on the amount borrowed. If you have a $200,000 line of credit but don't spend any of it, you don't pay interest. The money is still with the bank, waiting for you to use it. If you borrow $50,000 then you'll make payments (with interest) on $50,000. You'll still have the remaining $150,000 to borrow against.

@Robert Dudley I agree w/ the other guys...and I'd add that if you are doing so well on these, try to duplicate them buy getting the LOC/Loan and buying 3 more.

You can be successful by duplicating what you have already done very well instead of risking doing something out of your comfort zone. 

All the best!

sjw

@Robert Dudley, My 3 properties don't flow much cash they just basically pay for themselves with a bit extra that I put away for repairs. I was thinking after reading here if I would be better to sell one and pay off a mortgage on one to increase my cash flow. ?