HELP! Equity-rich, cash-flow poor. Looking for advice

[Brian O'Neill]

Short version: I'm a teacher, just moved from CA to NC.  Experiencing sticker shock at my salary decrease.  Hoping to use real estate investing to set our family up for the future (short-term and long-term).

We have ~$470k in the bank from sale of our CA home.  We are 50 days out from closing on our new build here outside Wilmington, NC.  We owe $430k on the new house.  

I love the idea of having our primary completely paid off, but then my money isn't exactly working for me.  Hoping I can leverage assets/equity to increase cash flow (which is the monthly challenge for our family right now).

However if I mortgage part of our primary and use the cash as a down payment on an investment property, I can't afford the monthly payments on that primary loan, even if the investment property completely pays for itself.  I guess what I was picturing is some form house-hack across two homes?  But I've run some deal calculators on houses in the area, and I can't seem to find a way to cash flow enough to cover both.  

I guess the bottom line is if I use money from my equity to invest, I have to be able to make better returns than the payments I'm making for the loan, but I don't know how to make that happen.  I feel stuck!

Any and all advice and direction appreciated!

[Greg Scott]

I have a good friend that is a music teacher here in Michigan.  He is feeding his family of 3 off his salary, but growing his wealth exponentially in real estate.  His latest single family acquisition increased his net worth more than his annual salary.  So, it can be done.  Others just like you have done it.

Your situation is going to require several spreadsheets. 

I'd start by examining your after-tax income.  Congratulations!  You just significantly downsized your tax burden even if your income dropped.

Any equity in your personal residence effectively "makes" you about 6-7% because that is the interest payment you are avoiding by having all that equity.  Putting that equity to use in investment properties can generate SIGNIFICANTLY higher returns.  Theoretically, any dollar you move from your personal residence to your investment properties, should make your financial situation better. 

However, shifting equity can't help you if the main problem with the mortgage payment are the property taxes and insurance coverage of your new house.  It would be good to understand what is happening there.  Sad to say, if that is the problem, you probably got yourself into more house than you can afford.

North Carolina has many great markets for rentals and you should be able to find deals that give you 15%+ cash on cash returns.  Keep in mind these returns can be largely tax free. Also,  you don't have to invest in your back yard.  Investing in other states is easy these days.

Good luck