Have massive equity, want to leverage it

[Matthew Adams]

Hi all,

Situation:  finishing 100% short term rental on second structure on property of current home.  Should rent for neighborhood of $200/night on average and is available 100% as soon as we finish, hopefully before Valentine's Day.  We also have a 100% vacation rental on the Gulf Coast that we renovated last Oct & have had on market since Nov 1.  We've had 4 stays through New Year's and are expecting things to pick up as we continue into the new year.

We also have a single family home in suburban Austin that we currently lease annually.  It is NOT our primary home, nor could we plausibly make a case that it is, so long term capital gains taxes would apply if we were to sell it.  Next lease renewal is like Jun 30.  We profit about $400/mo on the rental currently.  This home has increased in value incredibly over the last few years.  I'd say we have at least $360,000 in equity in it as I write this (based on estimates from Zillow, Redfin & realtor.com).

While we're planning on increasing the rent for the next term if we keep the property, I'd like to learn how I could leverage this equity into substantially more monthly income with little to no out of pocket expense and no capital gains taxes.

I have no experience with loans other than FHA or conventional on first or second homes, although I'm vaguely aware of alternative financing methods (asset loans, etc).

Any advice on how to turn that equity into substantially more monthly income?

Thanks in advance,

Matthew

[Evan Polaski]

@Matthew Adams, what are the immediate, mid and long term capital needs for your Austin property?  Roofs, kitchen and bath remodels, paint, siding, HVAC, etc.  If you continue to own, you will be responsible for those.  Typically no problem if the market continues to appreciate, but if prices start stagnating, you are spending money with nothing in return.

Do you want to continue to be a landlord?

Holding properties have their risks, and assuming you want to keep it, there are non-owner occupant loans (typically slightly higher interest from what I understand) or a HELOC. I like using HELOCs for flips or BRRRs where I have a clear capital event coming to payoff the HELOC. I prefer refi's if I were looking at long term rentals, going into syndications, or just looking for other investments (Gamestop to the moon!!! (I kid, I never owned Gamestop)).

The 1031 route is possible, and a great option if you are wanting to trade out of the Austin rental, but this will typically take the form of owning another rental, so if you don't want to be a landlord anymore, it will not resolve that issue. You can 1031 into a syndication structured as a DST, but these are less common than syndications that do not allow 1031 into their offerings.

The moral is: you have options, you can sell or refi/HELOC, to get the equity, and redeploy I many areas that are making a lot more than the 1.3% ROE you are currently achieving with your Austin rental.