Accessing home equity options

[Andy Collins]

I became a landlord by accident years back when I moved out of a condo and into a SFR and started renting it. I now want to proactively invest in more properties, but feel I need to access the equity in my condo or SFR to do so.

What options do you all suggest and why?  

• Cash-out refi on the condo or SFR
• HELOC on the SFR
• 1031 on the condo
• Something else?

The condo cash flows about $100/month, but has gained a lot of equity over the years.  My house has also gained in equity.  Both properties are on the Colorado Front Range.

1bd/1bath Condo

• Value - $300,000
• Principal Balance - $80,000
• Current Rent - $1,200
• HOA - $180
• Taxes - $1641
• Cash Flow - $100/month
• Tenant Lease End Date - March 2022

3bd/2bath House 

• Value - $465,000-$500,000
• Principal Balance - $278,400
• No HOA
• Taxes - $2,345

I feel like the 1031 on the condo would be the most advantageous route, especially since the property doesn't cash flow much and a refi would cause me to break even or maybe even go negative, but understand from some of the BP books that there's limited time to identify and buy properties that route.  

Really would appreciate any feedback.  Thanks!

[Justin Phillips]

For your condo, based off those numbers, it probably would make the most sense to sell. How many years ago did you move out? If possible, the 2/5 rule would be the best way to avoid those capital gains. The tough piece with 1031's right now is that deals are very sparse. 

For your primary, I'm a big proponent of a very specialized 1st position Heloc, that's tied to a zero balance sweep account. It maximizes flexibility, gives access to equity and increases cashflow. 
If it were me, I'd set one up on your SFR to start. You could set the LTV to 80% of value, so a credit line of up to $400k. That would open many doors, and give you steady access to that equity no matter what happens in the market. Paying simple interest on access to equity only when you need it sure beats locking in 30 years of higher interest-first payments with a cash-out. Plus with that zero balance sweep account, all regular deposits and idle funds can sit on your outstanding balance and save you a ton of interest cost as well.