Insight needed. Figuring out what the right move is with our properties.

[Jonah Horn]

Hello. I am new to the forum and truly appreciate any feedback that is offered. This post will be lengthy as I want to fully describe our situation to give all you readers a full picture. I appreciate you sticking around to read the full story and give me some thoughtful feedback.

Here goes!

We have 3 single family homes. 2 are rentals and one is primary. We are planning to move to a new home about an hour away by June 2024 so we are in the beginning stages of planning what is the right thing to do with our investment properties and primary now so we don't regret a missed-step after things are in motion or after the fact. Btw, we do not have any LLC setup currently.

Properties:

Ash St. Rental: 15 yr mortgage w/ 3% rate. 8 years remain. Home value = $360k, Remaining balance = $94k. Mortgage = $1270/mth. Rent = $1750/mth. In addition, there is a HELOC up to $30k that I can tap into.

3rd St Rental: 30 yr mortgage w/ 6.25% rate. 29 yrs remain. Home value = $370k, Remaining balance = $210k. Mortgage = $1735/mth. Rent = $2000/mth

Primary: 30 yr mortgage w/ 2.875% rate. 28 yrs remain. Home value = $400k, remaining balance = $181k. Mortgage = $1030/mth. Potential rent = $2000/mth. In addition, there is a HELOC up to $142k that I can tap into.

My original intention was to sell all properties and 1031 exchange the 2 rentals into a multifamily and use all proceeds from sale of primary to put towards new primary when we move. Seemed like a straightforward and good plan as long as both rental properties sell fairly quickly and I can find a quality property to 1031 into within 180 days. This is a bit risky and could have some major tax ramifications if it doesn't work out all in time to meet IRS requirements for 1031. Also, I would be purchasing a new property and selling property that I am already familiar with and have solid renters in the Ash St. Rental. Also, in some instances, vacancies are more frequent in a multifamily property from what I've been told. I think a nice duplex may not have the turn-over rate compared to a four-plex or larger. I really would like to see cash-flow of $3k/mth.

So, idea #2 is to sell 3rd St. Rental with a profit of ~$160k, pay off the $95k balance of Ash St. Rental and save the remaining funds for a down payment on a new primary. After cap gains tax of guessing 15% of the $160k that would leave us a remaining $42k. We would then transfer our current primary into a rental and cash flow $950/mth and cashflow $1750 off the newly paid off Ash St. Rental home. Total cashflow = $2700/mth. These homes are in great shape and we have fully renovated our primary so we know that house inside and out. The Ash St. Rental is in solid shape but could use a kitchen remodel at some point but all else has been updated and a new roof is scheduled for this summer.

I plan on eventually quitting my J.O.B. and fully getting into real estate investment consisting of long-term rental properties and mixing in some flips to help knock out other debt or to paydown mortgage balances. Ideally, I would like to do this next summer when we relocate to a new primary but may not be able depending on debt and other expenses. I really want to make sure that I am not missing anything with this change in our life.

If anyone sees another great option for us or away to maximize our profits and is willing to share I would appreciate it so much. I feel like we are on the cusp of really being able to make some big changes off the hard work and property that we currently have but I am not able to see a defined path on exactly what to do next that is based on an analytical approach rather than just 'winging it'.

Thanks.

Jonah - Tillamook, Oregon.

[Kerry Baird]

In an inflationary environment, we want debt.  One of my mentors, Jason Hartman, has coined the phrase "inflation induced debt destruction," as one of the main pillars of real estate investing.  My original plan was 5 houses, paid off.  We recently bought our 39th house, some of which were pure flips, some were fix and flips, and many have been long term holds. 

Like David Greene recently detailed on his YT channel, different properties have different attributes: some are primarily for cash flow purposes, while others are primarily for appreciation.  Our own portfolio has a pyramid structure: we have a lot of LTRs with strong cash flow on the bottom tier.  This is followed by a number of houses in a tourist beach market that are appreciation plays.  At the top are a few high end STRs that cash flow and appreciate. 

I found that when I have 3 houses, they pay for the 4th.  This helps tremendously with risk.  I also found that paying off houses is not for me, even though that is what my initial plan was.  Debt offers some form of protection and also enables me to grow my portfolio "wide" before I pay it "down." 

My structure also is helpful for tax purposes, with the benefits of cost segregation studies and real estate professional status, as well as the short term rental benefits. 

If I were in the same shoes, I would turn the primary into another rental.  Buy your primary and live in it for 2 years, move out and turn it into a rental.  Do that again another time or two. 

***Smart of you to source HELOCs before you need them.  You might want to draw from them and buy another pure rental and aggressively pay it off with your rents.  And do this again.  Your portfolio will become a "self licking ice cream cone," to quote my husband.  :D