Question on leveraging assets

[Alexander L Gulledge]

Hi All,

I recently secured my second rental property using a HELOC and now I'm thinking about my next purchase. I've heard of folks using the equity in their rental properties to purchase additional properties and I'm trying to learn if this would make sense for me. My first rental has over 100k equity and the rent is almost double the debt payment (I've got a really great mortgage from 2020 so it cashflows very well). I believe there maybe a few different ways to tap the equity in my 1st rental, but my concern is that if I take out the equity for a new purchase, I'll be reducing the cashflow of my business due to the additional debt repayment. Assuming I'd be able to use the capital on a new purchase and that new purchase would pay for itself and then some, I wouldn't expect it to also cover the debt repayment for the equity loan. I don't want to refi or sell the 1st property since it's doing so well. The second rental is doing well but it will take me some time before the HELOC is repaid and I can use that again. So I'm reaching out here to see what others have done and if leveraging the equity in my first rental would make sense to pursue a 3rd property. As info, I'm focused on long term buy and hold single family. Thanks for your time and I appreciate any feedback or guidance.

[Jonathan Greene]

You are in a great spot with your second rental property, but what's the rush? Using a HELOC can work, but it's still a second loan on one property so I wouldn't be looking for a way to leverage one of your two properties just yet to get a third. Any time you use a HELOC, you only want to use 50 percent of the available equity or less so if you can do that over time carefully, it will work. But don't rush into a third too soon. Make sure both properties have all the repairs and maintenance needed and no major cap ex is needed before you try to add one on double leverage.