Looking for advice on current rental properties

[Robert Jordan]

First post on BP. 

I am looking for advice on my current situation. I have two rental SFH properties in the downtown Denver area. Both properties have leases coming up in the Fall of 19'. The properties will have been rented for 5yrs and the other 2yrs. The 2yr property was my primary residence before turning it to a rental. According to estimates/taxes the value on each property is in the 650k range. Which means we have around 350k in equity on each property. Currently each property cashflows around 1k a month plus $500 in equity monthly. I am thinking of selling one of the properties (the 2yr rental to avoid capital gains) to realize the 350k and then scale up 2-3 properties a year until I can reach 10k a month in cash flow from buy and holds. The Denver market is very overpriced so would be looking at other markets to invest in. Possibly the Raleigh, NC area.

I am very new to this and am looking for advice on how to scale my operation. Suggestions? Advice? 

[Chris Lopez]

@Robert Jordan Leverage is the key to scaling. You have a "good problem" with all the equity. While it's nice, it's not making you money. Below is a slide showing how your ROI diminishes as your equity goes up.

Below are two slides that compare 3 scenarios:

1. Max refi (often leads to negative cash flow)
2. refi, but keep the DCR (Debt Coverage Ratio) to 125% (basically a metric that commercial lenders use to make sure the rental income and can pay for the property mortgage and expenses)
3. 1031 (or in your case, cash out) into multiple properties. 

From a pure ROI spreadsheet viewpoint, repositioning equity almost always wins out. Reach out if you talk the data more... it's a lot to digest!