Need advice on buying or selling, how to expand my portfolio!

[Sharon Miller]

Hi Everyone, thank you for your time, I am a newbie so please be nice! :)

I have following Assets:

Rental property - Purchase price 120K (Current Value 200K) - fully paid - bringing $1450 a month

Primary Residence - Purchase price 320K(Current Value 380K) - 150K due in mortgages (1140 only principal and interest monthly)

I am going to finish my mortgage payments for my primary residence as fast as I can since I am almost there. After its finished, I am not sure what would be my next step? Renting my primary residence will only bring $2500 a month, which is not much considering its value. 

Here is what I am thinking my options are:

1. Sell the primary to tap into cash, so I can purchase another Primary residence and in addition one or more rental property in 100 - 150K range

2. Keep the primary residence, and get Heloc to purchase another investment property in 150K range. Though I really want to get out of my current neighborhood, since house are too close no breathing space. 

Any other options that you see fit in my situation? 

Thank you for your help in advance. 

Sharon

[Greg Scott]

Using debt properly is a key aspect of growing a healthy real estate business.  

Having no mortgage on a rent property is not a great idea for two key reasons.  1) Your return on equity is very low and 2) you become a lawsuit magnet.

Ignoring your personal residence for now, how much more cash flow would you make if you got a 50% loan on your rent property and then bought another exactly like it? You are currently getting an 8.7% Return on Equity ($1450*12/200,000). If you had two properties just like it and each had a 50% LTV with 30 year debt at 5% interest, your total cash flow would go from $1450 to $1827 for a RoE of 10.9%. It gets better if you buy four properties with a 75% LTV.

As a side benefit you now have four properties instead of one.  If one tenant moves out you still get 75% of your rent rather than 0%.  Also, if over a long time you get appreciation, it is better to have appreciation on FOUR houses instead of just ONE.

Good luck.