Best next steps for 200k in capital

[Ryan Mitchell]

Good Morning BP Community!

This post may get a bit long and detailed, but all of the up-front information is relevant to my question.

My wife and I recently completed our live-in flip on Cape Cod, MA. The final check distributed to us was for $211,004.90. We put a down payment of 27k into the property, and updated the property (mostly ourselves) for 32k. We were all-into the property for 59k, purchase price was 375K. We ended up selling for 595k in September.

We also currently have a rental property in Beaumont, TX that rents out for 2200/month with a mortgage of 1640/month. Total cashflow on the property after all expenses is roughly 275/month. This house was purchased using a VA loan, and was originally our primary residence prior to our latest military move to Cape Cod, MA. The house was purchased for 203k, our remaining mortgage is 191k, and the current market estimate (although not an official appraisal) is 276k.

Our goal is to accumulate properties through the BRRRR method, and as I see it, we have two avenues through which to do this:

1. I can simply use the money in my account to BRRRR.
2. I can pay off my rental property in Beaumont, TX, and utilize a HELOC to BRRRR.

I know that most people will say that they never want to pay off a house due to the tenant paying it off for you, and the difference in percentage returns that you get based off of appreciation, tenant payoff, etc.

I have generated a list of pro’s and con’s to each of these approaches, and was hoping people would weigh in on the best strategy.

Pro’s & Con’s of just using cash:

1. 1.) Keeping the cash in my account enables me to more easily access it.
2. 2.) I wouldn't need to pay interest on it, as I would with a HELOC.
3. 3.) The leverage on my mortgage keeps the tenant paying it off, rather than me.
4. 4.) Any cash that I'm not actively using to BRRRR is just sitting in a checking account, not making any money at all.

Pro’s and Con’s of paying off the property:

1. 1.) By paying off the rental, I can reclaim my VA loan benefit in order to use it to buy a house-hack property when my family moves again (in June of 2022) for very little money down.
2. 2.) My cashflow from my rental property goes way up, enabling me to “make” money in this way, even if the money is just sitting there in the property.
3. 3.) Due to the estimate of the property's value (again, not an actual appraisal), I would be able to pull out roughly 193k in equity (assuming a HELOC at 70% value) in order to BRRRR with.
4. 4.) I would have to pay interest on the HELOC once I've taken it out to BRRRR with, which would increase my holding costs for any BRRRR property I purchase.

I look forward to everyone’s insights, and would appreciate any corrections to the assumptions I’ve made, or additions to the pro’s and con’s that I haven’t considered.

-Ryan

[Tucker Cummings]

Hi Ryan, first off, that's awesome with the live and flip. 

First thing I'm immediately seeing, can you not just do a cash out refinance at 75% LTV of the Beaumont property? You'd get your VA loan paid off, would have it on a traditional mortgage and have an extra 10k-ish to use. You could then use your VA loan to do the next live-n-flip and have about $220k for all the rehab work. Just looking at what you're saying... you're wanting to use your 211k to be able to pull out 193k, which doesn't seem to make sense. Yes you'll have more cash flow, but there are way better ways that you can accomplish that other than paying off the property.

My wife and I are actually in the the same boat, we did a live and flip and are in the process of going through our next steps. Here is what we plan on doing, if you don't mind me sharing. We're planning on using our proceeds to use an FHA 203k loan which we can use to buy a 2-4 unit in poor condition that we can do a live and flip, plus househack. With the money remaining, we'll likely put it into the market to grow a little and look for a larger investment, like a small apartment building, to generate additional cash flow. Just another route you may want to consider.