What should I do with $2M in equity? Sell?

[Chris Hill]

I'd love some advice.  I purchased 14 townhomes eight years ago for $120K each, and they are now all worth $350K.   Total value is $4.9M, and I owe $1.6M.   My goal is monthly cash flow.  I'm about roughly $11k right now, but my goal is 30K.  Here are a few thoughts I've considered, but I am sure someone with more experience might have better suggestions.  

1.  Sell 6 of them - Ideally I want to hang onto the 8 newest ones, so I'm considering selling 6.   Rough numbers, I could sell for $2M, and I owe 400k on those six, so I would net 1.6 (I know I'm excluding some costs).  I've invested in Ashcroft syndications and I like that a lot.  The cash flow of those 6 today is about 6k.  If I were to put 1.6 into ashcroft at 9%, its $12K a month, double.  That diversifies me a bit more, local rentals, syndications.  I'd probably split the syndications amongst a few operators.  (Suggestions?)  I cant 1031 into ashcroft so would it be worth it to eat the capital gains?

2.  Cash out refi - I looked at these numbers if I did refi on all 14.  I could get 1.9 in cash, but the payment on the current loan plus the cash is $18K so not ideal.

I manage the 14 properties, which is easy as they are newer, but eventually I want to be more passive. 

In summary, my main question is what would you do with the equity?  My market could drop and I would miss out on those gains.  All you experienced folks, what would you do in this situation?  Happy to provide any details i missed.  

[Bill B.]

Don’t forget to subtract at least $200k for capital gains tax (more if you live in a state with income tax) and another $50k for depreciation recapture. (So your $1.6 becomes $1.3 and your $12k becomes a little less than $10k) Then as long as you’re confident these people you know by name alone won’t lose or steal your money or sell the property and return your money and stop paying 9% you should be back to even in just 5 years. (I’m not counting the higher taxes you’ll be paying on the increased cashflow to keep it simple.)

At least you can give up control to an unknown person, that’s a big step for most real estate investors. But I get your point $11k return on $5mil is pretty bad. Less than 3%. 

Ps. It seems like your thinking your market will drop but not the syndicators market? You didn’t say what market you’re in that you think is worse than most? 

Pps. If interest rates rise that will hurt big residential a lot more than SFR as buyers will want higher returns resulting in lower offers. I would bet 90% of the syndicators out there haven't experience a rising interest rate market.