220k in equity in first home, where to go from here?

Question

Hello BP, this is my first time posting to the forum. I have been following BP for a while now and have been working to build as much knowledge as possible for my endeavors in Real Estate. I would love some input from all of you BP professionals.

My first home purchase was when I was 20 years old, I purchased this home because I couldn't see any benefits of renting. I reside in CA. I currently have $220k in equity in the home. Rents for similar properties are going anywhere from $1,700 to $2,000. My current Mortgage payment including taxes, and insurance is $980. I have done my research including Brandon Turners book "Long Distance Real Estate Investing". I have also saved around $20k in reserves for future investments. I am looking at properties throughout the U.S. as CA is a very expensive market.

Should I take a HELOC on my current property and take the money out of state for a bigger Multi-Family purchase? Should I sell the property? The only thing that is slowing me down a bit is being tied down to a very good paying job and having a wife and two children. If I sell we would need a place to live. What are your thoughts on renting for the short term? I have even been looking at some two to four unit buildings in my area that are more on the expensive side, but I could house hack them. I love this real estate game because there are so many options. This is why I need some advice from all of you Real Estate professionals.

Thanks for taking the time to help me with this exciting issue.

Kenny Manchester

William Brown · Answer

Spend about $300 dollars and buy the first 20 books that are recommended in the first 20 episodes of the bp podcasts. Without this knowledge you are likely going to misplace or misleverage the capital you have right now.

Brent Coombs · Answer

@Kenny Manchester, does paying $2,000/m to rent make much sense, when you're only up for $980/m, to own? (Yes, I know there's other costs). Congrats on getting into the game so young.

You know that $220k in equity doesn't mean that a bank would let you the full $220k on top of your mortgage, right? ie. How much of that is borrow-able equity?

ie. How much percentage equity do you have (vs what percentage will they lend up to)?

Anyway, no harm in asking your Lender (or others for that matter).

[Do you (and your wife) really fancy uprooting your family, to be under a landlord?]

Welcome to BP. All the best...

Kenny Manchester · Answer

@Brent Coombs , I don't really want to pay $2,000/m to rent. I would prefer to keep this house, rent it out, and take the equity and buy something else. The equity loan would be around $190k according to my local CU. I would need to be careful to make sure this home still cash flows with the additional HELOC loan. Another idea is I could just look for a good deal in my area on a duplex or triplex and take out a new FHA loan at a low down payment, meanwhile just keeping my current home without taking additional loans on it and rent it out for substantial cash flow (problem being finding a good deal in my area). My current home is under a Conventional 30 year fixed.

I do not want to uproot my family yet. Maybe once I get enough wealth under my belt. My wife is 100% on board with whatever we need to do to become financially wealthy. Even if that means leaving a house to move into an apartment or duplex or something that will be uncomfortable to be able to grow our wealth.

Thank you for giving me some stuff to think about and consider, I truly appreciate it.

Kenny Manchester

Kenny Manchester · Answer

@William Brown I agree building knowledge is key in any investing or any aspect of life. As so many others would agree, this is why Richard Kiyosaki's book "Rich Dad Poor Dad" is a great starting point for any want to be investor. I do not want to misplace my equity or savings and is the main reason I wanted to hear as many ideas as possible. This gives me a chance  to learn what others would do in my position.

@Alina Trigub I want to be an active investor as this gives me the chance to control my investment, I could change and shape my portfolio as needed. My goal is Multifamily. In fact I would prefer to skip SFH investing all together unless it is something with three to four units. I am in this for the long haul, I am 29 years old and I have large goals to achieve.

Thank you both for your input. Learning is a lifetime endeavor, I will continue as you guys suggested.

Kenny Manchester

Alina Trigub · Answer

@Kenny Manchester I second what @William Brown said. You should educate yourself first prior to making any decisions. Learn about various strategies of investing in RE: active and passive. Figure out which one you like best based on your personal needs and bandwidth and educate yourself on it until you fully get it and then take action. Then repeat the process.

Happy to chat more offline if you'd like. Best of luck!

220k in equity in first home, where to go from here?

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