Have equity with 2 houses, don't know where to start

Account Closed · 2020-11-30T15:40:29-08:00

Hey there guys, I have been a working in the software sector and saving up for the last 11 years since college and have bought 2 houses so far but have not rented them out. What caused me to buy 2 houses is that I believe that real estate is a good and safe way to store wealth against inflation. Now I read into bigger pockets and really want to get into the whole real estate investing where I either rent out the properties or refi the properties and pull out the equity to buy more properties. What scares me away is tenant issues which I know will come up at some point, also I renovated the houses myself and put a lot of sweat into them, and reading about properties getting trashed by tenants really scares me away from renting the properties out. house #1 I bought for 260k and it is now worth 400k-420k , it is currently my vacation home located in Henderson NV (comparable rent is 2000 a month) tax is 2150 a year , insurance is 1400 a year house #2 I bought for 356k and it is now worth 450-470k in Cary NC. This is currently my primary residence (comparable rent is 2300 a month) tax is 4240 a year , insurance is 1480 a year I was thinking about doing a cash out refi on my primary residence and then buying a house to rent out and also renting out the Henderson home once I clear the home of my furniture etc. Either that or use the money from the refi and buy a smaller home to live in and rent both homes out. I also thought about selling one of the properties, but from what I have read online, it is better to hold onto the properties and do cash out refis against them if I need the money. Just looking for advice, what would you do if you were in my situation?

Mary CroninPro Member

Real Estate Investor · Crescent Mills, CA · Member since 2010 · 127 posts · 74 votes

5y

Get some education. A lot of the benefits to RE investing are tax related using leverage to your advantage.

At the moment, it sounds like you're paying cash and doing all the work - in other words you have a 2nd job. Additionally, if you rehabbed properties for your use, you may have over-improved the property for rentals. Eg most of us would tell you no more moving parts than absolutely necessary (no garbage disposals, no water softeners, etc.). If you want to keep grounds in good condition, pay a gardener & add the cost to the lease amount.

As far as tenants, hire a property manager and keep out of management. As an investor your job is to manage the managers not the property. If you get a good manager, they'll maximize your returns and keep tenants from bothering you at 2 am.

0 Reply

Account Closed

OP

Member since 2020 · 9 posts · 3 votes

5y

Originally posted by @Mary Cronin:

Get some education. A lot of the benefits to RE investing are tax related using leverage to your advantage.

At the moment, it sounds like you're paying cash and doing all the work - in other words you have a 2nd job. Additionally, if you rehabbed properties for your use, you may have over-improved the property for rentals. Eg most of us would tell you no more moving parts than absolutely necessary (no garbage disposals, no water softeners, etc.). If you want to keep grounds in good condition, pay a gardener & add the cost to the lease amount.

As far as tenants, hire a property manager and keep out of management. As an investor your job is to manage the managers not the property. If you get a good manager, they'll maximize your returns and keep tenants from bothering you at 2 am.

Thanks, I am new to the whole real estate rental investment idea. Property management is charged as percentage of rent correct? Also I still have to pay third parties such as plumbers etc for incidentals as they come up ?

0 Reply

Mary CroninPro Member

Real Estate Investor · Crescent Mills, CA · Member since 2010 · 127 posts · 74 votes

5y

You pay the manager a percentage - I've recently seen as low as 6% and as high as 10%. They will arrange and pay for repairs from the income and send the net to you. They will of course ask for more if it's a major expense (HVAC roof etc). They'll also handle evictions and move-ins/outs (probably an extra fee).

1 Reply

Antonio CuccinielloPro Member

Investor · Austin, TX · Member since 2016 · 531 posts · 310 votes

5y

@Account Closed You are in a better position than most people, with the equity in your properties and having a higher paying job in software engineering. Great stuff.

First off, there's a lot of ways you can go. If you want to build cash flow/passive income, then you need to get into buy and hold and have tenants. You can pay a property manager to do a lot of that.

Second, If you have no cash, you can use the equity in your primary residence to use as a downpayment on a rental property. that would be the easiest, non-complicated way to start, with less cash out of pocket.

732-402-6988

1 Reply

Stephanie P.Pro Member

Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes

5y

@Account Closed

Consider short term rental for the Henderson house. Get a property management company. Have them manage the property and the turnover and pay them a nice percentage. You'll find significant tax benefits and income.

1 Reply

Jack YenPro Member

Rental Property Investor · Cary, NC · Member since 2018 · 106 posts · 34 votes

5y

@Account Closed congratulations on having these "problems"! It means you have built quite a bit of equity which contributes directly to your networth. I think you are on the right track that believes real estate can build wealth, now is the matter of how to use the equity efficiently to generate more cashflow and more wealth. I was in a similar situation, too. I think refinance out your primary home might be a good idea since the rate has been sooo low and it could free up some "cash" for you to do more investing. On the vacation rental I would probably refinance, too, and also explore the idea of Airbnb to maximize your income potential.

On your other question, I would ask yourself that would you prefer to be active or passive real estate investor? Both has it's perks and doesn't mean one is better than the other. Active RE investor will have to take on more responsibility and need to spend more time on RE, in general, compared to passive investors. I've been to both sides and it really depends on what you like and what your goal is. There are so many resources on BP and I think would help guide you through this journey. Again, great "problems" to have :)

1 Reply

Account Closed

OP

Member since 2020 · 9 posts · 3 votes

5y

Originally posted by @Antonio Cucciniello:

@Nathan W. You are in a better position than most people, with the equity in your properties and having a higher paying job in software engineering. Great stuff.

First off, there's a lot of ways you can go. If you want to build cash flow/passive income, then you need to get into buy and hold and have tenants. You can pay a property manager to do a lot of that.

Second, If you have no cash, you can use the equity in your primary residence to use as a downpayment on a rental property. that would be the easiest, non-complicated way to start, with less cash out of pocket.

Thanks Antonio, I like the passive income strategy, I don't have enough cash to buy another property. I will take out some equity from the primary residence to get started. I thought it through and this is probably the best way to get started with a small property and work my way up from there.

Originally posted by @Stephanie P.:

@Nathan W.

Consider short term rental for the Henderson house. Get a property management company. Have them manage the property and the turnover and pay them a nice percentage. You'll find significant tax benefits and income.

Hello Stephanie, I am looking into property management, the problem is the HOA in Henderson doesn't allow for short term rentals (Any lease has to be presented to the HOA and be over 2 months). I would of liked to airbnb the place out and leave the furniture but it doesn't look like that is going to happen

Originally posted by @Jack Yen:

@Account Closed congratulations on having these "problems"! It means you have built quite a bit of equity which contributes directly to your networth. I think you are on the right track that believes real estate can build wealth, now is the matter of how to use the equity efficiently to generate more cashflow and more wealth. I was in a similar situation, too. I think refinance out your primary home might be a good idea since the rate has been sooo low and it could free up some "cash" for you to do more investing. On the vacation rental I would probably refinance, too, and also explore the idea of Airbnb to maximize your income potential.

On your other question, I would ask yourself that would you prefer to be active or passive real estate investor? Both has it's perks and doesn't mean one is better than the other. Active RE investor will have to take on more responsibility and need to spend more time on RE, in general, compared to passive investors. I've been to both sides and it really depends on what you like and what your goal is. There are so many resources on BP and I think would help guide you through this journey. Again, great "problems" to have :)

Thanks Jack, that is the hard part, saving the money was easy to buy the places as I just kept working and saving, but actually renting them out and trying to grow my net worth with leverage is a lot harder as it has a lot more risk etc. The vacation house cannot be airbnb'ed as the HOA doesn't allow for any leases under 2 months (they want a copy of the lease). I am going to start small and pull the equity from the primary residence first to start small and work my way up.

Personally I would like to be an active investor, but I think I have a lot to learn before I jump in to manage properties myself etc. I am probably going to start off passive investing with a property manager at first and after a few years, slowly start doing my own properties.

1 Reply

Have equity with 2 houses, don't know where to start

Have equity with 2 houses, don't know where to start

Most Popular Reply

7 Replies