If you have two niche properties but want to buy more rentals

[Tym Pearson]

Hi There! 

I'd love input on what I have going on over here. I have three properties, and my goal is to acquire more rentals. One of my properties is in town and brings in $700/mo. My second property is in a highly sought-after area not far from town on 5 acres that I've remodeled with $250k of equity that I've rented out to clients that are house shopping (only covering mortgage). My third property is my primary that I've completely remodeled and sits on 4 acres down the street from the lake where I now have around $430k of equity. My goal is to acquire more properties that generate passive income by incorporating the BRRRR technique but I feel I need to sacrifice one of my country properties in order to get started. Is it worth selling a highly desirable country property knowing that I could never buy one of these again for what I paid or is there another alternative that I'm not thinking of? Most of my money has been sunk into remodeling both properties.

Thank you in Advance! 

[Joe Villeneuve]

You don't have properties, you have equity...that is dead money.  Selling the two properties with the large equity isn't sacrificing anything.  All you're doing is moving the equity (the true value of the property) forward to a new "residence" where it is worth more than it is right now.

The value of a property is in two forms of cash:  1)  Cash Flow; 2)  equity.

Cash flow comes every month and grows in your bank account, or lives where you spend/invest it.  Equity grows in the property, and decreases (not a typo) in value as it does.  The close the equity gets to the Property value, the less the equity is worth...and thus the less the property is worth.  The value of the equity isn't the number after the $$$ sign...it's the ratio of that number to the PV that equity lives in.  The higher that number, the more valuable the equity and property are

Example:  $100k property; $20k DP (20%);  Ratio PV to equity = 5 to 1

1 - Property appreciates to $120k; equity grows to $40k;  Ratio = 3 to 1
2 - Sell property and recover equity as cash $40k
3 - Re-invest at 5 to 1 ratio and new PV = $200k
....Equity doubled; property value increased by 20%; lost money = $80k

Now, how much would you CF increase if you bought 2 $100k properties with the sale money (DP's) instead of keeping the property and having 1 $120k property?