Got property and good amount of equity but dont know next step

[Paul Guimarin]

First off, thank you to all the people that share the info you've learned!!

Ok so here is my story so far.  I bought a house for 141K that needed tons of work but in great neighborhood.  Worst house in best neighborhood kind of deal.  Lived in it with my wife and 3 kids for 6 years now and fixed it up little by little.  About a year and half ago we pulled 60K out with a cash out Refi.  We bought a dated condo and spent 3K(from savings) updating it, its now worth around 80K and is cash flowing around $350 a month through vacation websites(its very close to the Kennedy Space Center).  My primary house has appreciated and is now worth about 320K.  Also, I've saved about 10K I would be willing to use for investing again.

I really want another property but don't really know where to go from here.  Could definitely use the advice on what my options are.  Should I use the main house again and buy something small so I only have that 1 loan, or pull 40K(ish) from the condo and use it as a down payment thus getting 3 loans in the process?  I feel like I'm at a crucial step and would really like to make a good decision.  

Any advice and or opinion would be greatly appreciated!!  Oh and hope Im posting this in the correct section(still kind of new here)

Thanks,

Paul

[Ross Denman]

@Paul Guimarin, I'll see if I can give you some information and good ideas. 

• Every market is different and in Indianapolis, I prefer to have my clients stay away from most condo's. They tend to be slower to appreciate and HOA fees tend to rise faster than rents reducing annual cash flow. The HOA's are ok as they offset a large portion of your Capital Expenses and provide even lower maintenance housing than your traditional SFR's, but in Indianapolis, I'm still not the biggest fan. My fear is that you are going to reduce your cash flow to $0 if you finance $40k from your condo. This is not a terrible thing since you are leveraging the equity to grow your portfolio, but you will need to ensure that you keep $5k-$10k liquid for reserves since the cash flow is going to be reduced so much.
• I see a lot of clients get started by accessing the equity in their homes with a HELOC. It's relatively low interest (around 6%-6.5% right now I think) and usually interest only payments for a period of time.This allows you to invest with the same position and power of an experienced cash investor. Being the only decision maker and having the ability to close in days will give you a leg up on closing deals... especially when a seller has seen deals fall apart in the past. You can always refinance some or all of your money in the future to pay the principal back. I always recommend keeping 6+ months rent back for reserves, but with the HELOC, as long as it's not maxed out, can be used as a source of reserve funds if necessary.

Personally, I think leveraging your personal residence will be your best bet. Unless your personal credit won't support it, you could probably do both which would should create enough liquidity to pick up several units either via cash and refi or conventional financing.

Remember that each home is appreciating based on 100% of the value of the home, but you are only investing 20% or less of your own capital for long term investment. This makes your equitable ROI 5 times as great as a cash position. For instance, if you own a $100k home that appreciates about $3k annually, that's a 3% ROI. If you leveraged that home through conventional (20% down, 5:1 leverage) financing, it would be a 15% ROI in equitable growth ($3k on a $20k investment.) If you bought all cash and refinanced 90% of your money back, your equitable growth would actually be 30% ROI annually ($3k on a $10k investment or 10:1 leverage.)

The point being... if you are in growth mode, leverage as many assets as possible to obtain more assets. The leveraged equity growth is huge. It may take several years to do this, but it will put you in an amazing position.The equity growth will probably end up being the most profitable part of the investment. By the time you get to 10-12 units, you can probably start picking up a deal every year just on the equity growth. Just ensure to keep adequate liquidity to handle any operational issues that come up.