Understanding Return on Equity and when to Cash Out Refi?

[Waylan Liu]

Hi All,

My goal is to grow my portfolio to generate cashflow to live off of passive income. Mainly interested in BRRRR deals.
I have a couple SFH rental properties here in the midwest that are fully paid off. Having this equity sit around feels wasted and I could be using it more effectively to reach my goal.

Both properties' market value is about $220,000 and both cashflow $14,000/annually. ROE=6%

What is considered a good ROE? Can having too much equity be considered a bad thing? In this case I should do a cash out refi to invest in other properties, right?

[Steve Vaughan]

Originally posted by @Waylan Liu:

Hi All,

My goal is to grow my portfolio to generate cashflow to live off of passive income. Mainly interested in BRRRR deals.
I have a couple SFH rental properties here in the midwest that are fully paid off. Having this equity sit around feels wasted and I could be using it more effectively to reach my goal.

Both properties' market value is about $220,000 and both cashflow $14,000/annually. ROE=6%

What is considered a good ROE? Can having too much equity be considered a bad thing? In this case I should do a cash out refi to invest in other properties, right?

I'm happy with an ROE of 7%, but I am in the preservation stage. 

If still in accumulation stage, I would want a higher return and would be willing to make a higher effort.  

Yes, I would think putting equity lines (nothing to refi) on these if you have opportunities to invest at a higher rate makes sense.  

My min return for the pain and costs of obtaining financing is my ROE + inflation + fees + indigestion factor + time comp for sourcing another deal.