How do I best use my current equity?

Question

I am currently living in my 3bd 2 1/2 bath 2435sqft on 4+ acre home I bought in 2020. My wife and I are looking to start our rental investing journey. I'm struggling to find the best use of our current equity in the home. Bought the house in 2020, for $325k with a 15yr 2.75% mortgage. Home's current value is roughly $500k - $525k depending on local realtors we've spoke with. We owe $220k and have a few simple things we could do to increase the value a bit. We love the location and property it suits on, but long term goal is to build a home in a few years on land we own. We currently are thinking of selling this home, downsizing short term and buying a home out right with the equity that we'll turn rental. We like our home and the equity already in it and wondered if there was a better way to use it and potentially the home itself as a rental to grow effectively and efficiently. Rents in my area for 3bd homes are roughly $1,600 - $2,400/month. We could relatively easily convert a bonus room in the house to a 4th bedroom and add to potential home value too. Any advice or insight would be appreciated.

Sorry if this is too much information or rambling.

thanks

Sorry if this is too much information or rambling.

thanks

Wright Sara · Answer

You're not rambling — this is actually a really common crossroads, and the numbers matter a lot here. That 2.75% rate is the key detail: selling means giving that up entirely, and at today's rates that's a real cost most people underestimate until they run it side by side.

Worth thinking through before deciding to sell: you could potentially tap the equity without losing the loan — either through a HELOC or a second position loan — to fund a down payment on your first rental, while keeping the current home (and that rate) as-is or converting it to a rental later once you build. That keeps two options open instead of collapsing them into one move. Selling to buy a home outright in cash simplifies things, but it also means giving up leverage — most investors scaling a rental portfolio use financing precisely so their equity can work across multiple properties instead of being locked into one.

Since your long-term plan already involves building on land you own, the sequencing question really matters: are you thinking of using this equity for your first rental purchase, or more for the future build itself? That changes which route makes more sense.

Happy to walk through the numbers in more detail over DM if it'd help.Wright Sara

Jason Roberts · Answer

Do not sell that home! Use that mortgage to your advantage of your planning to sell. We will never see rates that cheap again.  You keep mortgages under 4% and get creative.  Message me if you need help.

Devin Cable · Answer

Considering where your capital is currently parked, I'd argue a 1st-lien HELOC like our All In One could potentially carry a lower interest COST than your 2.75%, depending on your situation.Here's the case for it: you owe $220k on a home worth $500k+. Move that balance into the AIO and you only pay interest on what you carry, not the full line, and only on the ~$220k you owe, not your whole equity. It's a first-lien HELOC with a sweep account, so your income and idle cash sit against the line and interest is charged on your average daily balance.That's where it gets interesting for someone in your spot. IF you've got considerable disposable income or cash sitting in savings, that money parks against the line and shrinks what you actually pay day to day. The rate is higher than 2.75%, but your real interest COST could come in lower, the loan pays down fast, and you'd still have a liquid line to pull from for your next rental or the future build.So two paths: keep the cheap rate and let the equity sit, or put it to work in a line you can attack and reuse.

Amir Twig · Answer

Brandon, appreciate you laying out the actual goal, that changes the read a lot.

One thing to gut-check on the "5-10 rentals that pay for themselves AND cover the future build" piece: a rental that just breaks even (rent = PITI + reserves) won't throw off enough to also carry a second mortgage. Break-even doors build wealth through paydown and appreciation, not spendable cash. So either you buy for real cash flow (not 1% break-even stuff, more like deals that clear PITI by a few hundred after vacancy and capex), or you accept the build gets funded by the equity those doors pile up over 15 yrs, not their monthly cash flow. Both work, they're just very different door counts.

The vacation-STR piece has a tax trap worth knowing now: if your personal use is more than the greater of 14 days or 10% of the nights it's rented, the IRS treats it as a personal residence and you lose the ability to write off rental losses (plus it muddies any cost-seg/bonus depreciation). 6+ family visits a year can blow past 14 nights fast. Doesn't kill the idea at all, you just want to count nights on purpose.

Tying it back to the Toledo house: feeding something that loses $1,300+/mo for years is the opposite of that plan. Selling and putting the ~$245k toward the first 2-3 cash-flowing doors gets the snowball rolling instead of paying to hold a money-loser with a nice rate on it.

What's the monthly number you're actually trying to replace, and what markets are you underwriting for the rentals? That's what tells you how many doors and what cash flow per door you need to hit the 15-18 yr mark.

Amir Twig · Answer

Tabish, you're running them right, you're just counting principal as a loss. On that 15yr note ~$1,400-1,500 of the $3,450 is principal, so it's forced savings coming back to you, not money out the door. Your true economic bleed is more like a few hundred a month, not the $1,400+ the "$2k rent vs $3,450 payment" gap makes it look. That's what makes it read worse than it actually is.

The number I'd decide on is return on equity. You'd walk with ~$245k. Even crediting the rental for principal paydown plus some appreciation, a single SFH at this basis is a low return on $245k of trapped equity, and you're feeding it cash every month to hold it. That same $245k spread over 2-3 right-priced properties could cash flow now and still keep you in the appreciation game. The 2.75% is only worth keeping if this one house out-earns what $245k does elsewhere.

What's your timeline on the next home, and is the real goal monthly cash flow or long-term net worth? That's what tips it either way.

Brandon Soncrant · Answer

If all went well and we leveraged what we can, ideally we would have 5 to 10 rentals, that pay for themselves and cover the mortgage on the future primary residence build. The goal with that is to only have to borrow up to $200k on that build. With a longer term goal of having most of the properties fully or mostly paid off and using the cash flow from the rentals at that time to offset our W-2 incomes within 15 to 18 years from now. I'm not entirely sure how many rentals that will take us to get to that point, but one of them being a short-term rental that we use as a vacation home a 6 or more times a year for visiting the wife's family in the U.P of Michigan.

Masoud Arouni · Answer

The number that stands out: $3450 in fixed costs against $1900-$2100 realistic rent isn't a thin margin. It's a $1350-$1550/m loss before vacancy maintenance or capex even enter the picture. At 6-8% vacancy that's another $130-$170/m gone. This property doesn't almost cash flow as a long-term rental — it loses money every month you hold it, 2.75% rate or not. The "keep the cheap mortgage" logic only works if the asset attached to it produces income, and this one doesn't.

On the sell side: $147500 of your own cash in over 6 years, walking with $244800, is roughly a 66% total return on your capital — solid, but that's the return on a primary residence that appreciated, not a rental performance number. The real question is what that $244800 can do redeployed into a property where rent actually clears fixed costs by a healthy margin. I'd run this exact scenario through a few different exit price points and rent assumptions side by side before committing — the breakeven rent on this property versus what's achievable in a market where the 1% rule has a shot at holding tells you almost everything. The 2.75% rate is valuable, but only on an asset that earns its keep. Right now it's subsidizing a loss, not building wealth.

Vijay Friedman · Answer

@Brandon SoncrantWith that amount of equity, I'd look at the decision from both a cash-flow and long-term wealth perspective. Before selling, it may be worth running the numbers on keeping the property as a rental versus unlocking the equity and redeploying it elsewhere. Sometimes the flexibility of retaining a performing asset can outweigh the immediate benefit of selling, depending on your goals and timeline.

Tabish Masood · Answer

The first thing that jumps out at me is the 2.75% fixed-rate mortgage. That’s an asset in itself and not something I’d give up lightly.

Before selling, I’d run the numbers on three scenarios:

• Keep the house and eventually convert it to a rental.
• Sell the house and use the equity to buy one or more rentals.
• Keep the house, access equity through a HELOC or other financing (if the numbers make sense), and acquire rentals separately.

One question I’d ask is: what is your current monthly mortgage payment versus what the property would realistically rent for after accounting for vacancy, maintenance, taxes, insurance, and reserves?

If the property would barely break even or be negative cash flow as a rental, selling may make sense. But if you can hold a property with a 2.75% loan that tenants largely pay off for you over time, that’s hard to recreate in today’s rate environment.

I’d also be careful about selling solely because of the equity. Equity doesn’t generate returns by itself—what matters is what that equity can earn elsewhere versus the benefits of keeping a low-rate loan and a property you already know well.

Have you calculated what your net proceeds would be after commissions, closing costs, and paying off the mortgage? Sometimes the amount available to reinvest is less than people initially expect.

Brandon Soncrant · Answer

I appreciate all the valuable feedback from everyone. Upon further research and more detailed analysis of this property and the immediate market I've learned that this property is in the $1900-$2100/ month range realistically with an average vacancy rate in this area of 6%-8%. The property (if I'm running the numbers properly?) wouldn't cashflow as a dedicated lint-term rental.  The mortgage payment + insurance +plus taxes alone are $3450/ month before any other short-term and long-term maintenance and vacancy holdbacks. Based on the closing costs, commission costs and what is left on the current mortgage, if i sell at the bottom end of the property's value ($500k) my walkway cash would be $244,800. Keeping in mind I've got a total of roughly $147,500 of my own cash into the property over the past 6 years.

Again, I appreciate all the advice and differing perspectives. They are helping keep the emotional decisions out of the evaluation and helping keep me to the logical, while showing me some things I didn't see or didn't dig into enough.