How to leverage an inheritance. Sell, Refi, Wait?

Question

Hello BP!

I am currently living in Pensacola FL and looking to get into STRs and possibly multi-family properties. I inherited 2 properties in Denver and I would love to hear what an experienced investor would do in my shoes. Combined the properties are worth about $700k and paid off. They each bring in about $2k per month and thus far have not had many monthly expenses. I also own a primary residence that I purchased with a VA loan that has appreciated about $50k.

I'd really like to use this blessing to jumpstart my real estate investing journey. The options I see are:

A. Sell one or both properties and spread it out among 4-5 higher end properties for STRs in desirable markets, leaving cash aside for furnishings and the necessary emergency funds.

B. Refinance one or both properties and do something similar as stated above but with even more debt and obviously less money to invest overall.

C. Wait it out and continue to collect rent and become more experienced with what I have.

Some concerns. With all the equity, I see it almost as a lot of rope to get in trouble with (in over my head). What would you guys suggest?

I'm more interested in buying properties that are not very heavy on rehabs due to my current job and family life. I appreciate any insights in advance!

Travis Timmons · Answer

If you had $700k cash, would you purchase two homes in Colorado? If the answer is yes, then keep 'em. If not, sell and find something more suitable to your preference. For example, you mentioned short term rentals. Can you rent these homes short term given the local laws and regulations?

And what is your tolerance for risk and debt? Finance is as much dopamine, cortisol, and serotonin as it is calculation and return. Try to find a goal that you want, not what you think you should want. And, to the best of your ability, do not move those goal posts. My goal when investing is to maximize the combination of financial security and control of my time. I believe that the happiest people are those that have the most control over their time, so all of my decisions are filtered through that. There's a great line in a book that I read recently that said something to the effect of "You all can worry about maximizing your returns. I'm just gonna worry about how much time I can spend in Europe with my wife." There's a bit of humor in that and it is not to suggest that you should purposely give money away, but I'd rather spend the summer in Italy with my wife and make 30% less (assuming a certain level of financial security).

Either way, I'd suggest seeking counsel from multiple professionals and making a slow, deliberate, and well thought out decision. I would sell them if it were me, but you are not me. And all three of those options are good ones so long as they exist within the context of a well thought out plan.

Nicole Heasley Beitenman · Answer

Would one hundred percent keep and refinance. I suggest taking time to network with others in your market before deciding where to deploy your equity. If STR's are the route you want to go, read some books and meet others who can give you some advice.

Patrick Daniel · Answer

First, I would invest in yourself by getting educated in whatever niche you want to succeed in. $700,000 is a blessing and if not managed wisely can become a problem. Unless I was planning on moving back to the CO area, I would sell with your stepped up basis, and create a plan on how to deploy the funds.Just don't go in blind.

Matt Jones · Answer

With $2k income and it sounds like approx $350k value each the properties may not offer a ton of cash flow after you refi.  I'm all for doing a refi and using the proceeds to grow when it makes sense but just keep in mind that it doesn't always make sense.  If your not looking at enough cash flow to make it worth managing and maintaining an out of state property you might consider just selling both and reinvesting closer to home.  Pensacola is a great market for investing and has a good mix of LTR & STR options.

Kevin Konrad · Answer

Thank you all for the responses! I do like the refinance option and will definitely be looking into that. I'm not sure if there is a way to respond to each individual comment but I appreciate you all taking the time to respond to a newbie!

Steven Foster Wilson · Answer

I would refinance the properties. Do you numbers and evaluate. https://www.calculator.net/ren... here is the Calculator I use. I have refinanced one of my properties 2 times. Each time I’ve got more money and been able to buy more units. Plus,it is still cash flowing!

Nick Travali · Answer

Yea refi those bad boys and invest in additional properties.  Make sure your numbers work first tho.

Steve K. · Answer

To me it would depend on the property specifics of those Denver properties (location, condition, etc.). I'm bullish on the market here long term, especially in the entry-level price band and it's a tough one to break into, so if they're decent properties in "path of progress" type locations, I'd want to keep them personally. They've also got really good rent to value ratios for this market. There's not much in the ~$350k price point here anymore. Like not much at all, I just ran a quick search and there are currently only 10 homes listed for $350k and under in all of Denver metro even going down to Castle Rock and up to Longmont as well as out onto the Eastern plains, so they may be worth more than you're thinking. Happy to help with the decision by lending local market knowledge and opinion if needed, feel free to reach out.

How to leverage an inheritance. Sell, Refi, Wait?

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