Cash in on equity to invest or keep and pay off

10 Replies

Hello Everyone!

I am new to the forums here and this is my first post! Excited to be here with you guys!

I have about $100k in equity in my first investment property which is cash flowing $300/month. I have owned this property for three years now and it's value has increased by about 10% for three years in a row. ($318k mortgage; appraised at $420 this year)

Do I cash in on the equity to split my investment into two properties, or do I hold onto it, hope it continues to grow, and keep my cash flow?

One way to think about it is, would you buy this property today as a rental?

Have rents increased on pace with home values?

We have a rental in AZ where rents have stayed mostly stagnant, but prices have gone crazy, going to sell that one when the lease is up and buy properties closer to 1% rule.

On the other hand, if you're in it for the appreciation and the rate that you have on that property is good, might make sense to stay in it. 

 Depends on your goals and operating targets. I don't want more than 10% of all properties more than 90% leveraged. This is a conservative policy of operations that we employ to counter a sharp drop in value like 2008. You only have one property and its way above the standard SFR investment property in value if you were able to get a 90% cash out refinance, could you take that $60k and put it in another property that would be stable and worth $120k at the end of your efforts. If you can't I'd wait until I could and work on finding ways to accomplish this.
I have a good team and can put in sweat equity so I could find a tax foreclosure and get to those numbers with considerable effort. I've done it before. I've even built a home new for that cost and had it appraise. 
I would wait to get a solid 100k and go for a better property maybe 175-250 value and see if I could get another source or another out that makes my ops better

@Riley Way

I am in a similar boat with one of my property’s in Louisiana. My advice is to make your decision on what your vision of your business will look like in the future. If you haven’t already read Vivid Vision, I recommend you read that and determine what your goals are and make the strategic decisions like this one to achieve your goals. 

In my case, I am not selling the property yet until I reach a specific amount of equity, and time based. Meaning, after you move, if you lived in the home as a primary residence you have five years to sell the property without doing a 1031. Ultimately, I would sell to fit my vision and short term goals of scaling and cash flow, but this is something you need to determine for your self. 

Hope this helps 



@Joshua McMillion

There's actually an IRS exception for military. If you moved because of a PCS the 2 out of the last 5 years rule is extended to 2 out of 10.

Updated about 2 months ago

Had to update, I hate putting out bad info. Atleast this is that kind of bad info that is good.. this is straight of IRS site. Its more like 2 out of 15. Active military personnel on qualified extended duty in the U.S. Armed Services, Foreign Service, or the intelligence community (sales or exchanges after December 20, 2006) may suspend the five-year test period for up to 10 years for the purpose of reporting capital gains tax on real estate sales. This capital gains tax provision may be used for only one property at a time. Qualified extended duty is defined as being assigned to a duty station at least 50 miles from your former principal residence or residing in government housing under orders and the duty lasts for more than 90 days or for an indefinite period.

@Riley Way It's all a numbers game. What does that house rent for? A $318k mortgage seems high for a normal single family rental property that cash flows. How are you running your numbers? Are you including all of the hidden expenses (CapEx savings, vacancy, etc)?

My guess is that it rents for way lower than the 1% rule, and I know that the 1% rule isn't a hard and fast rule to stick by, but it does give a fairly safe bet that your investment will provide positive income. I'd offer that you look at what that $100k of equity could do for you elsewhere and compare the current property's ROI to the ROI you could get with that same $100k somewhere else in a better cash flowing market. Look at the cost of capital and how you can best put it to work to make more capital.

EXAMPLE: that $100k of equity could probably buy 3-4 properties in the Midwest that each have that same $300 per month of income, per property ($1200 per month of positive cash flow, after ALL expenses).  

Have you considered actually selling the property outright and not only taking advantage of the tax benefits of no capital gains tax (if you lived in it for 2 years) and look at putting that $100k of equity into some actual investment properties that will produce way more cash flow? Or, you could take that $100k and do BRRRR deals, over and over and over again and do way better with that $100k. Or, you could put it into a syndication for a more passive approach and probably make a really good return (with the right sponsor of course).

@Stuart Grazier

It rents for $2300/mo. I was considering selling the property and ideally splitting it into two down payments for $200k properties in a long distance investment and hopefully cash flow $300 per. Two Turnkey properties was my first thought but I wouldn't be against a BRRR. As it would be my first real venture into the market, I would be scared of the extra risk. It feels like a flip.

@Riley Way I think that is a great idea! The $200k price point still may be too expensive for great cash flow for a single family (unless you are doing short term rentals). It may be worth looking more in the $100k - $150k range per door, unless you are looking for multifamily deals. Maybe you can get yourself 3-4 doors, vice just 2!! Good luck! 

@Riley Way Little bit late - but would check out Re-finance options or taking a HELOC ofr your additional equity. San Diego is one of the best markets so would try to hold your property if possible , take the HELOC and invenst that into another property where you can get better cash flow


@Riley Way

Depends on what your goals are. Run the numbers and see which possibility gives you the highest return for the least amount of risk. I'm an advocate for holding onto property if you can but in some situations it doesn't make sense. Can you keep the property and do a HELOC? If the ROI is higher on the purchase of two properties maybe its time to capture your gains on the existing property and sell it. Let me know if there is anything I can do for you.

@Riley Way You might be able to tap into some of the equity with a HELOC or a refinance, which could be a win win! However, $100k is a pretty sweet amount of money to walk away with, provided you use it to decrease debt, or buy assets that will cash flow more than $300!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you