Best Strategy for My Paid Off Duplex

[Blake Chapman]

Hello everyone,

I own a duplex in California that is currently paid off. In its current condition it is worth 250k and needs a bit of work cosmetically, id say 40,000 in updates. I️ currently collect 1850 in rent and have both units rented out. 

I want to get into larger multi-family deals and have been thinking about refinancing the property and taking out 200k for updates and reinvestment into a larger deal. 

Thoughts on this? I’d eat up all my profit in rent in a mortgage but I’ll be able to add some great value and hopefully get a 18 unit or larger building with the leverage. 

Or should i just leave my paid off property alone?

[Nathan P.]

@Blake Chapman

My personal favorite vehicle for leveraging a property is a Home Equity Line of Credit. Then you can use the funds on demand as needed maybe start with the 40k renovations on your duplex and then have the rest of the credit line readily available to get the large multi-family you are looking for.

I dont know the location of your duplex in California but $925 for rent per side seems reasonable and there may be room for rent increases. Research the locate market for current rent prices. Lets say you invest the 40k into your duplex and it allows you to raise your rents by $150 per side yielding you another $300 per month and $3600 per year.

3600/40000=.09

Is a 9% return within your goals? Also consider the forced appreciation on the property that may allow you to borrow even more against it in the future.