Advice on using current rental property to fund other deals

Buying & Selling Real Estate
10yFollow

Advice on using current rental property to fund other deals

Riad Ali
Fort Lauderdale, FL · Member since 2016 · 4 posts · 0 votes

Hello everyone, this is my first post. I recently decided to get started on investing in real estate. I have read a couple books and articles, browsed the forums and am listening to podcasts. Still have a lot to learn and would like some advice. I currently have a paid in full home in Miami, FL that can sell for about $290-300K and has been rented without vacancy for about 5 years. It is currently rented for $1850, but could probably go as high as $2000. I feel like I could make more with the money from selling this property.

I have been throwing around ideas in my mind about how to use this property to get started, but I am not sure what makes most sense. Sell the home and buy other properties in South Florida? Sell and get use all as a down payment for an apartment complex for multi family home? Refinance with cash out and use those funds for another property? Don't touch it and finance deals using a different method?

What would you all do with that property to maximize my return and get started investing? Keep in mind that properties in South Florida are relatively expensive and deals are gobbled up by cash buyers pretty quickly.

0Reply
13 views

11 Replies

Jump to latestLatest
  • Jerry PadillaBusiness Member
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    10y

    @Riad Ali

    With A cash out refinance you could pull out 75% of the equity on the property. That is a good deal of money for down payments. I'd the house still continuing to appreciate in value? If so it may be worth it to keep for appreciation as well. Selling the property is going to have real estate agent fees and closing costs, so if it is cash flowing and easy to rent out while appreciating and increasing rent over time, I personally would keep the property, cash out refinance and purchase more property. 

    Actually I may purchase future properties with immediate equity or that need a little work and then cash out with delayed financing right after closing. You could stretch your money out even further this way. 

    [email protected]585-204-6923
    PrimeLending 4.8583 Reviews
    WebsiteView Page
    0Reply
  • Account Closed
    Investor · TX · Member since 2015 · 119 posts · 40 votes
    10y

    @Riad Ali from my experience working at RE investment firms the owners always held on to the properties that where "A class" and would only sell properties they acquired which where harder to manage or less likely to hold their value. I am not sure on the location of your property but it sounds like it could be categorized as "A class". You want to hold on to those assets.


    You could leverage this property by doing a cash-out refinance. You should be able to free up at least 200K. That gives you some flexibility on what kind of property to get into next. This comes down to your goals and investment preferences. 

    I can provide you with some ideas and experiences from successful RE investing firms I've worked in as an analyst. 

    My most respected friend and colleague @Account Closed can also help you get the most out of your existing property.

    0Reply
  • Riad Ali
    OP
    Fort Lauderdale, FL · Member since 2016 · 4 posts · 0 votes
    10y

    Thank you both for the response. I was heavily leaning to a cash out refinance. @Account Closed I would be interested in hearing about some of the ideas you referenced. I see you're from Miami and I am sure you see how fast things get scooped up in SFL.

    0Reply
  • Robert G.
    Residential Real Estate Agent · Miami, FL · Member since 2013 · 195 posts · 138 votes
    10y
    Originally posted by @Account Closed:

    @Riad Ali from my experience working at RE investment firms the owners always held on to the properties that where "A class" and would only sell properties they acquired which where harder to manage or less likely to hold their value. I am not sure on the location of your property but it sounds like it could be categorized as "A class". You want to hold on to those assets.


    Noe, I agree with your concept, but not your conclusion. VERY unlikely that any SFR in Miami costing $290-300K is in an "A" class area. That price range corresponds to "B" class, at best, around here. Maybe even lower, depending on the location.

    As for the refinance scenario, lets say he cashes out 75% ($225,000).  The question is would be willing to spend $225k for an asset that has a gross monthly return of $1850.  I wouldn't.  That is less then 1%.  About 0.8%, I think.  I don't even need to run the numbers to know I'd rather have the 225k to invest elsewhere.

    0Reply
  • Frank Boet
    Miami, FL · Member since 2015 · 84 posts · 69 votes
    10y
    Originally posted by @Riad Ali:

    Thank you both for the response. I was heavily leaning to a cash out refinance. @Account Closed I would be interested in hearing about some of the ideas you referenced. I see you're from Miami and I am sure you see how fast things get scooped up in SFL.

    Riad, I live in Miami and the pickings are few. The Miami market is way overvalued. I expect a small bubble in 1-2 years. What I would recommend is instead of refinancing your home and have to pay closing costs and begin paying interest immediately, why don't you get a HELOC and have the money sitting there UNTIL you find the right property? My strategy is to buy with a HELOC, then refinanced the purchased property and pay off your HELOC. Rinse and repeat.

    0Reply
  • Justin R.
    Developer · San Diego, CA · Member since 2015 · 1k+ posts · 1k+ votes
    10y
    Riad Ali Yes to what others have said. Also be aware of the tax implications (tax owed on gains if you sell, depreciation's impact sheltering your income if you hold, and the impact of interest expense deduction if you take out loans). If my sister asked me this question, I would recommend taking a mortgage on the current property now, then taking time to find an additional property to buy. You can always decide to sell your current SFR later, if you want to. This assumes real estate is the best investment option open to you right now.
    0Reply
  • Riad Ali
    OP
    Fort Lauderdale, FL · Member since 2016 · 4 posts · 0 votes
    10y

    @Frank Boet brought up an interesting idea of getting a line of credit on the property (if I can find a lender to do it) and using that to purchase a property. Then refinancing that property I bought to pay off the line of credit. Do you guys thinks that is a better move than outsight refinancing the property?

    Frank, I live in Fort Lauderdale and have not seen any worthwhile opportunities. Have you had any success since you started?

    Thanks

    0Reply
  • Frank Boet
    Miami, FL · Member since 2015 · 84 posts · 69 votes
    10y
    Originally posted by @Riad Ali:

    @Frank Boet brought up an interesting idea of getting a line of credit on the property (if I can find a lender to do it) and using that to purchase a property. Then refinancing that property I bought to pay off the line of credit. Do you guys thinks that is a better move than outsight refinancing the property?

    Frank, I live in Fort Lauderdale and have not seen any worthwhile opportunities. Have you had any success since you started?

    Thanks

     Riad, aside from my principle residence, I have not bought any investment properties. I am very patient. Real estate, like all assets, will drop then go back up. All assets go through cycles. Wether it is real estate, oil, gold, art or baseball cards. It is all about supply and demand. Home Depot had Christmas ornaments 50-75% off the day after Christmas. I stocked up and went on a shopping spree. LOL Why? Low demand. Oil and gold are going to make a lot of people rich in two years. When oil and gas prices rise, that "stimulus" of cheap gas will end and people will have less money to spend. I think the U.S will enter a recession this year. You will be able to buy real estate 15-20% cheaper by the end of the year or early next year. In the meantime, sit by the pool sipping a margarita under the beautiful Florida sunshine and wait for the properties to come to you. They WILL come!

    0Reply
  • Jerry PadillaBusiness Member
    Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
    10y

    @Riad Ali

    If you plan to take the money out for any length of time, I recommend a cash out refinance as rates are really low right now and you can get a 30 year fixed interest rate. HELOC's have an adjustable rate, and if rates go up, so does your payment. If you then choose to cash out refinance, rates will already be higher. Choosing to use the equity to purchase more properties in the future, is more of a long term plan.

    [email protected]585-204-6923
    PrimeLending 4.8583 Reviews
    WebsiteView Page
    0Reply
  • JT Spangler
    Buy and Hold Investor · Nashville, TN · Member since 2013 · 264 posts · 102 votes
    10y

    If you examine your property as if there were financing in place I think you'll find it's not a good investment. Your capital is unbelievably valuable, and right now you're not getting a great return on it.

    Normally I think I'd vote for you selling and rolling that into 25% down on a nice apartment building, but with your experience level I worry that could be a tough transition.

    But just remember before you go with a cash out refi or HELOC to calculate not just your return on cash, but also your Return on Equity. (shameless plug)

    0Reply
  • Riad Ali
    OP
    Fort Lauderdale, FL · Member since 2016 · 4 posts · 0 votes
    10y

    @JT Spangler I agree. I wish I had experience running an apartment complex as I could certainly use the capital to afford one, but I wouldn't have a clue as to what I am doing. I'm still very unsure as to what my best move is.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free