What's my next step? Drain equity or let it ride?

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I'd exchange rental #1 and rental #2 and buy a small apartment complex. Long-term you are probably just breaking even on those two (best case).

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Unless there's some appreciation play here, I'd just sell these. There is way too much value for the small rents you're getting.

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I don't see why it wouldn't be. I own property in phoenix that i've never been to. I had a trusted team there, they did the leg work, i was the puppet master, and am now cash flowing. I have a fantastic PM company there handling my home. cincinnati is like anywhere else, get a good agent, good property manager, do leg work on contractors, run the numbers, and if it makes sense, it makes sense. I just got off the phone with a guy from vegas, owns 7 units in price hill, can't get them rented. Him PM company is based out of columbus. He needs a full time cincinnati agent working his building. I had good news for him ;)

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Joe, Is it that easy to come into your area and enter the rental business? I would imagine this area needs a hands on style and out of state owners present opportunities for local investors. If you are advising your area can you suggest how one could go about it from a distance? Thanks in advance.

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You like your properties too much. Do you have some type of emotional attachment to them? From a numbers standpoint, they aren't solid. I'd look outside your area to get things with much higher rents for much lower pricing. Deal im in the process of acquiring now. 75K in, 2200 in rents and thats being conservative.

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Well, some more details as to what I was/am thinking: -My market is pretty solid, the Washington DC area didn't get slammed as hard as other markets and RE wise has been slowly growing out of the last dip in the market. -I only consider the Vegas/Florida option since there are really nice properties in those markets for cheap, and since they are good vacation/retire areas I figure if/when the market improves they should do better. I do realize there is a huge glut of inventory in both those markets which is why I think its more likely that they would be Long Term Rental purchases. -Rental 1 (townhouse) and Rental 2 (condo) in this market are in good areas, and as the market improves they should grow quite well. Both rent very quickly so being vacant is not an issue. -I have no problem with doing a refi and taking the cash out of the townhouse, that plus what I have now would give me about $200-250k to work with. The question is what is the smartest way to use that quarter mill. What I'm not sure of is whether I should make a small Rental business, using the money as seed capital to secure a larger line of credit (and therefore buying more rental properties). I don't even know if this is wise, I'm just throwing this option out because others have mentioned it. -I'd love a situation where I could leverage all of this into a portfolio that would generate 50k a year net but I'm short on new ideas. Most likely that's a bit unrealistic but hey, i'm throwing it out there.

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I guess it depends on what the local market is doing and exit strategies and time horizon period. In Georgia for instance we are not one of those appreciation driven markets that go up and down like a roller coaster.So on a graph we go down but not at a huge rate. There are some properties in Atlanta bought strictly for cash flow but those will not have the same appreciation rate qualities as a property in California

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As much as I don't think it is bad advice in this scenario for the original poster to trade up into an apartment, I think your assumption is flawed. Rents have come down 15-20% max in the last 4 years. Whereas SFH prices have come down 60%+ depending on the area. You really think rent increases and cap rate compression are going to beat SFH appreciation when the market changes? At the very least houses bought for cash-flow should keep up with apartments because investors would buy them as investments if rent goes up and cap rates compress... plus you have that large pool of people that want to achieve the American Dream of Homeownership.

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It doesn't make sense to hold equity because interest rates rise. I like apartment buildings because unlike houses the value is tied into the income approach versus the comparable sales approach. When the markets rebound and rents rise the value of the apartment increases and also we will see cap rate compression when the market gets hotter.So you can grow equity at a faster rate. One of the down sides to commercial investing is short term finance loans versus residential which has longer term loans.

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Chris, Linked for you: https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0902.pdf Raymond