How can I grow my portfolio with my paid off rental property

Question

Hello everyone, need some advise. I have this great opportunity to take my real state investing to the next level, but don't know what to do. I currently have  three properties.

1. A town home that is currently rented and is paid off free and clear, and if I was to sell can get about 235K.

2. A single family home that is currently worth about 380k, I still own about 210K on the loan and is currently rented,it covers the mortgage and a good amount towards the principle of this home.

3. The home I currently live in that I bought about  6 months ago(450k) that I will really like to either sell, or refinance and rent to take out my VA loan and buy the house I really want.

With that said, this is my indecision. Should I sell the town home and use the profit towards the new home I plan to buy (550K max) in order to have a lower monthly mortgage payment while renting the basement to have minimal out of pocket mortgage payment.

Use the profits to put half towards the new home(550Kmax) and the rest split towards my current home and the single family home to lower the mortgage on both while renting?

not sell the town home, since its already providing income????

Refinance my current home, rent it and hopefully the rent covers the mortgage

What would be the smartest decision???

As you can see, I just don't know what I can do. It boils down to me wanting to get the type of house I really want,  but being able to use the town home to grow my portfolio but not knowing what to do with my current home (sell it or rent it). I hope I make sense and some one who is really experience in real state investing can provide some ideas that I probably have not thought about.

Thank you everyone.

Fabian.

Account Closed · Answer

Sell everything, live in a cardboard box on the side of a freeway ramp and buy the largest multi-unit property you can buy with the money you have left. Or...something like that. The big money is not in the single-family properties. It is in multi-units. At this same moment while people are screwing around with single-family properties there are people becoming millionaires with multi-units and they are not spending any more money than the people purchasing single family properties.

If people are going to leverage their money then leverage it for multi-units. If people are going to partner up on properties then do it with multi-units.

Eric Rosiello · Answer

@Fabian MartinezBased on the information you've provided, here's how things look for you. I'm assuming you put 20% down for your current primary residence.

If you were to sell all three properties, you would generate $452,000 in cash. This is after 4% selling costs and paying back the outstanding mortgages. Please note this is BEFORE taxes. You should consult your accountant for tax advice.

At 80% LTV, you could buy $2.2m worth of real estate with $452,000.

You said you want to buy a new primary residence for $550k. That should cost you $120k ($110k down and $10k for closing costs) at 80% LTV.

This leaves you will $332k for investment, which could buy you $1.6m of real estate at 80% LTV. As the others have advised, I would strongly encourage you to buy a cash flowing multi family property (or properties) in an area you believe is likely to appreciate.

Alternatively, you could keep your current primary residence and have $380k to spend, which could buy you $1.9m of real estate for investment.

property

sell_price

loan_payoff

commission

cash_proceeds

townhouse

235

0

9.4

225.6

SF Rental

380

210

15.2

154.8

SF Primary

450

360

18

72

Total

1065

570

42.6

452.4

Jerry Padilla · Answer

@Fabian Martinez

For single family investment properties you can cash out 75% of the equity. Rates are really great right now so it is a good time to refinance.

If you can still cashflow on the properties after cash out refinancing I think they would be worth keeping as rentals allowing the tenants to pay off the mortgages. If they would be cash flow negative pulling the equity out on them I would sell.

As far as the cash that you will now have on hand from refinancing all these properties ........

I agree on purchasing more rentals. Either SFR or MFR whatever you are more comfortable doing.

I personally would put down the minimum requirements on your new primary residence - if that is what you choose to do. In doing this, I would recommend only purchasing a home that you can afford with this minimum down requirement.

Brent Paul · Answer

I have to agree with Jack on this one.  Putting the money into multifamily will generate far better returns than a 550k single family home.

I think you need to sit down and really think about your goals and where you want to be in the next 5 to 20 years.

You have many options.  Since the home is paid for you could take out a HELOC and probably get 2 or 3 houses, meanwhile that house is still generating income.

You could sell the house and buy 2 or 3 properties, but you would lose 1 house generating you income.  If the market tanks I would rather have my money spread out into multiple properties than be tied up with 550k in one house.

Something for you to think about.  Only you will know what will work best for you.