Need Help on Strategy Please!
New to Real Estate · NY/NJ · Member since 2022 · 2 posts · 1 vote
Need Help on Strategy Please!
Most Popular Reply
Arman AhmedPro Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 944 votesQuote from @Helen Smith:
Our story:
1. We purchased our current home for 699k in 2015 with a 15-year mortgage. We will pay off our home in a few years in 2030.
2. We purchased an investment property - turnkey during COVID in Lubbock, Texas for 249k. This property hasn't been cash-flowing.
Currently, we have built up lots of equity in our primary residence and want to start to explore more investment property opportunities. We are thinking to purchase some investment properties by extracting $$ from our current home, also want to move to a bigger space - a new primary residence and then rent our current home.
Questions:
1. What's the strategy based on our situation?
2. Where should I start and what are the actions?
3. Who should I reach out / look for to get more real estate advice, real estate attorney? lender? wealth manager?
4. Spoke with a local lender, they recommended HELOAN.
We really appreciate your help, especially since the first property we invested in was not successful, unfortunately. Thank you so much in advance!
You’re actually in a strong position because you’ve built equity and already have experience owning a rental, even if that first investment didn’t perform as expected. I’d focus on understanding why the Lubbock property isn’t cash flowing before repeating the same strategy, then look at markets where the numbers make more sense. Many investors from high-cost areas like NY/NJ compare Midwest markets because lower entry prices can create better cash flow and more room to scale. The next step is building a strong team with a good lender, CPA, attorney, property manager, and local experts who can help you make data-driven decisions.
10 Replies
- 3moArman AhmedPro MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 944 votes
Quote from @Helen Smith:
Our story:
1. We purchased our current home for 699k in 2015 with a 15-year mortgage. We will pay off our home in a few years in 2030.
2. We purchased an investment property - turnkey during COVID in Lubbock, Texas for 249k. This property hasn't been cash-flowing.
Currently, we have built up lots of equity in our primary residence and want to start to explore more investment property opportunities. We are thinking to purchase some investment properties by extracting $$ from our current home, also want to move to a bigger space - a new primary residence and then rent our current home.
Questions:
1. What's the strategy based on our situation?
2. Where should I start and what are the actions?
3. Who should I reach out / look for to get more real estate advice, real estate attorney? lender? wealth manager?
4. Spoke with a local lender, they recommended HELOAN.
We really appreciate your help, especially since the first property we invested in was not successful, unfortunately. Thank you so much in advance!
You’re actually in a strong position because you’ve built equity and already have experience owning a rental, even if that first investment didn’t perform as expected. I’d focus on understanding why the Lubbock property isn’t cash flowing before repeating the same strategy, then look at markets where the numbers make more sense. Many investors from high-cost areas like NY/NJ compare Midwest markets because lower entry prices can create better cash flow and more room to scale. The next step is building a strong team with a good lender, CPA, attorney, property manager, and local experts who can help you make data-driven decisions. - 3moMatthew Irish-JonesBusiness MemberReal Estate Agent · Buffalo, NY · Member since 2017 · 2k+ posts · 2k+ votes
HELOC is ok but it depends on how much you can pull out.
If you can pull out enough to buy properties in cash, do light rehabs, then refinance you are in a strong position.
If you want to use the HELOC to make down payments you will be 100% leveraged and will definitely not cash flow.
You also need a comp on your current property. Will the rental comp cover mortgage after a refinance?
Irish Jones Realty4.947 Reviews- New to Real Estate · NY/NJ · Member since 2022 · 2 posts · 1 vote3mo
Quote from @Matthew Irish-Jones:
HELOC is ok but it depends on how much you can pull out.
If you can pull out enough to buy properties in cash, do light rehabs, then refinance you are in a strong position.
If you want to use the HELOC to make down payments you will be 100% leveraged and will definitely not cash flow.
You also need a comp on your current property. Will the rental comp cover mortgage after a refinance?
Thank you for your reply! We were considering HELOC too, but a local lender suggested HELOAN. HELOC rate is higher and can fluctuate. Are you familiar with HELOAN?
Good point on rental comp cover mortgage after a refinance, our interest rate was low 2.7% and now it's around 6%, rent of our place is around $5500, and we pay $4600 monthly mortgage. I would think it will cover but need to run the numbers later on.
- 3moTravis TurnerBusiness MemberReal Estate Agent · Lubbock, TX · Member since 2021 · 45 posts · 28 votesHey Helen! We have an entire system set up in Lubbock, and we can avoid drawing cash on your home. I would not recommend adding more mortgage onto your primary! Give me a shout happy to discuss what we have going here and help you get some more rental property with bigger tax advantages
- 3moNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
a few responses
1. as @Matthew Irish-Jones alluded to, "extracting" cash from your house via any type of loan - it doesn't matter which - will not work. period.
I just want to be direct. The interest rate will be too high to allow you to be profitable. a HELOC has to be used for something short-term, like a BRRRR, and then paid off.
2. whether your house works as a rental - fine to explore as you noted. it either works or it doesn't. talk to some property managers.
3. who to reach out to... probably not any of the folks you listed. they'll all have expertise but only in one thing.
4. you said your Lubbock house doesn't cash flow. well... nothing cash flows right now. most people on BP saying their properties "cash flow" aren't actually giving the complete picture. sometimes people buy with HELOCs and pretend the interest isn't an expense since it's associated with their primary. so we'd need more info on that as well.
hope this helps - happy to dialogue further
- 3moAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votesYou mentioned the property in Lubbock isn’t cash flowing. I’d be looking to sell that if it has Negative cash flow and you don’t see a path forward where it will Cash flow. I would consider how much you could sell your current place for now vs projected cash flow. Your gain on the sale of your primary residence seems like it will Be tax free if you sell and you may be able to redeploy into something else.
Brick House CPAs53 Reviews - 3moJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesI used a HELOC on my primary to help me pay cash for two properties, then paid off my HELOC asap. Then I pulled out some equity in my primary with a cash out refi to buy 3 more cash flowing rentals. I’m a fan of harvesting the equity in my properties to increase my cashflow and scale up. I’ve bought 14 rentals basically for free by doing cash out refis, then deploying the money to buy more rentals. It’s allowed me to scale up without using a penny out of pocket. I’ve also bought 6 houses with 401k loans for up to 50k. I just did one two months ago. So I’m a fan of tapping into some of that equity you have just sitting there doing nothing for you. It’s a risk, but I’m ok taking on a little risk if I can find good cash flowing investments.
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes2mo
Quote from @Helen Smith:
Our story:
1. We purchased our current home for 699k in 2015 with a 15-year mortgage. We will pay off our home in a few years in 2030.
2. We purchased an investment property - turnkey during COVID in Lubbock, Texas for 249k. This property hasn't been cash-flowing.
Currently, we have built up lots of equity in our primary residence and want to start to explore more investment property opportunities. We are thinking to purchase some investment properties by extracting $$ from our current home, also want to move to a bigger space - a new primary residence and then rent our current home.
Questions:
1. What's the strategy based on our situation?
2. Where should I start and what are the actions?
3. Who should I reach out / look for to get more real estate advice, real estate attorney? lender? wealth manager?
4. Spoke with a local lender, they recommended HELOAN.
We really appreciate your help, especially since the first property we invested in was not successful, unfortunately. Thank you so much in advance!
I have another idea that you may conisder. I have to give credit for this idea to a fellow agent here in Chicago & I'll put a link to an article about a program named DREAM Program. DREAM stands for Discount for Real Estate Affordability and Mobility. Here's a link to the article about the program: https://www.businesswire.com/news/home/20260421090274/en/Gre...
Here's my summary of how it may work for you:
Currently, your lender is holding your 15-year mortgage from 2015. They are likely earning a very low interest rate from you (probably around 2.5% to 3.5%). Because current market rates are much higher, your loan is actually a drag on the bank's balance sheet — they would much rather have that money back so they can lend it to someone else at 6% or 7%.
In the DREAM program If you agree to pay off your mortgage early (typically by selling the home), the lender gives you a "discount" on your remaining balance. In short the equity dropped directly into your pocket at closing.
Until now your strategy was "keep and rent": extract cash via a helock, buy a new home and become a landlord again. With this program instead of risking another Lubbock-style-cash flow problem with your current home you can use a sell and reinvest strategy with your current lender writing off a chuck of the remaining mortgage balance leaving you with more cash at closing. You can take the tax break since this is your primary residence, then deploy the capital as a heavy downpayment on a primary residence with the remainder being used to purchase a positive cash flowing asset.
This is a new program and I'm not sure it's available everywhere so you'll have to contact your current services & ask if they participate in the Takara DREAM program or offer any principle reduction discounts for paying off low-rate mortgages early. If the anwer is yes then you can compare going the HELOCK route to this route.
Good luck
- 2moAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
@Helen Smith, John's approach of cycling equity through HELOCs and cash-out refis to scale without using out-of-pocket cash is a solid strategy that a lot of experienced investors use, and it's worth understanding the tax side of exactly that kind of move before you follow the same path, since how you extract and use the equity determines what's actually deductible.
From a tax side, the key thing here is what the borrowed funds are used for, not which property they're pulled from. If you extract equity from your current home (via HELOAN, HELOC, or cash-out refi) and use those funds to buy investment properties, the interest is deductible as investment interest expense tied to the rental activity, not as home mortgage interest, that distinction is often missed and matters a lot for how you actually claim it. Also worth knowing before you convert your current home into a rental once you move: your depreciable basis is generally the lesser of your original 2015 purchase price (plus any improvements) or the property's fair market value at the time of conversion, and since home values have generally risen since 2015, your original purchase price is most likely what actually governs your depreciation basis here, not current market value, worth confirming that calculation with a CPA before you start depreciating it as a rental.
On the Lubbock property that hasn't been cash-flowing, that's actually worth a separate conversation, if it's been running at a loss, whether those losses have been usable against your other income or are sitting suspended as passive losses depends on your material participation and income level, and either way, it's worth reviewing before deciding whether to hold, sell, or 1031 exchange it into something that performs better as part of this broader plan. Have you explored cost segregation on your properties to help harness those losses? That's worth looking into on both the Lubbock property and your current home once it converts, especially given you're already dealing with an underperformer. Given you're planning multiple moves at once (extracting equity, buying new primary, converting old primary to rental, possibly restructuring the Lubbock property), I'd get a CPA and a real estate attorney involved before executing any of this, the sequencing and structure matter a lot here, more than picking HELOAN vs. HELOC vs. cash-out refi as your entry point.
Happy to connect!
INVESTOR FRIENDLY CPA®5241 Reviews - Real Estate Agent · Morristown, NJ · Member since 2020 · 206 posts · 128 votes2mo
IMO the "best" way to add a property to your portfolio is by moving into a new home and keeping yours as a rental. In your case, because you're saying you want to move, that makes a ton of sense. You can utilize low money down if you're into that, and not have to take out any sort of HELOC/HELOAN.
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