Lots of Equity...Should i use it?.. if so, how should i use it?

Question

I purchased my primary residence  from a tax foreclosure auction about 2 years ago for 90k cash...(free and clear) Its currently worth about 250k.

I also own a commercial building free & clear I got about 5 years ago from a tax auction. I paid 10k for it its worth about 100k

I currently have 1 mortgage from 2007 for 57k that was my primary residence before my current one that a relative has been occupying and making the mortgage payments on.

My credit score is 780, and I have about 40k liquid for investing. Im looking to get started with rentals to increase my passive income.

Any suggestions...?

Joe Ferguson · Answer

@Gerald Gray Do you wish to keep the two free and clear properties? If so, I would do exactly what James recommended.

Personally,I would cash out and go all in on an apartment complex. 250K + 100K + 40K = 25% down on a 1.5M complex. Tell your relative they are about to have company.

Ivan Barratt · Answer

@Gerald Gray what's your long term goal here? What's your day job/biz. How far do you want to take your real estate holdings?  Let's "begin with the end in mind."

James Masotti · Answer

This is more a matter of personal preference. Some people will do a 100 unit apartment building as their first deal, others will invest with a syndication or note investor, others will do private lending, yet others still will buy a single family turn key rental, and other will want to flip or wholesale.

Everyone has their own comfort level, there is no "right" answer to this question. It's about analyzing your own personal risk tolerance and long term goals. Then start to walk backwards from your long term goals to your short term goals and determine what is it that will allow you to get there. Then look at the risks associated with that and then ask the questions about what you can do to reduce the risk associated with that. Hopefully this makes sense...

James Masotti · Answer

I guess I'm not clear what your question is. You have equity and you want to buy properties. So get an equity line and go buy some properties!

Gerald Gray · Answer

All who replied...thanx for the replys! Beginning to realize the powerof these forums. So much great feedback. Ivan, i currently run the facilities and maintenance department for a big 3 vehicle manufacturing plant here in Michigan. Make great money but have been starting to realize that the time i would like to spend with family and just overall quality of life probably wont increase by working 50hrs a week in a plant. My goal is to replace, and eventually double my salary thru real estate investing. I like the single & multifamily rental lane.

Gerald Gray · Answer

All who replied...thanx for the replys! Beginning to realize the powerof these forums. So much great feedback. Ivan, i currently run the facilities and maintenance department for a big 3 vehicle manufacturing plant here in Michigan. Make great money but have been starting to realize that the time i would like to spend with family and just overall quality of life probably wont increase by working 50hrs a week in a plant. My goal is to replace, and eventually double my salary thru real estate investing. I like the single & multifamily rental lane.

Thomas S. · Answer

The real estate you own presently, with their respective equity , are liabilities not assets. Due to the opportunity value of cash, which is highly prised by investors, you are losing/missing out on a great deal of income.

With a combined total of 350K in equity you are losing $2900/month in income based on a opportunity value on cash of 10%.

Your choice but painful for a investor to see piles of dead equity not being forced to earn it's keep.

You could make more money placing your cash in the hands of a good financial advisor than in real estate.

Gerald Gray · Answer

Thanks Joe!

Joe Ferguson · Answer

@Gerald Gray I clearly do not recommend doing anything you are not comfortable with. There is nothing wrong with starting with a 2-4 unit residential multifamily to get your feet wet. This will provide you with an incredible learning experience at an arguably lower risk factor (at least less money at stake). You already have the means to scale up when you are ready.

Lots of Equity...Should i use it?.. if so, how should i use it?

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