What do should I do with Rental Equity

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@Matthew Failor, @Chris Waugaman, You can 1031 exchange into multiple replacement properties. One strategy might be to purchase one property with cash and one property with maximum loan. This would let you satisfy your 1031 exchange requirements but also scratch your conservative itch. since you'd end up with a property with little debt so less risk. and a property that has debt which carries some risk.

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Given your situation and interest in potentially expanding your investment portfolio, you might consider the BRRRR method as a strategic approach. The BRRRR method stands for Buy, Rehab, Rent, Refinance, Repeat. It's a real estate investment strategy that allows investors to build a portfolio of rental properties over time by recycling the capital invested in one property into multiple deals. Here's how it could apply to your case: Buy: Use the equity from your current property to purchase one or more additional properties. Given you have $200k-$225k in equity in your townhouse in Clayton, NC, this could serve as a substantial down payment for one or more new properties. Rehab: If the properties you purchase need updates or repairs, invest in making those improvements. This increases the property's value and can allow you to charge higher rent, improving your cash flow and the property's appraisal value for refinancing. Rent: Lease out the newly acquired and rehabbed properties, preferably to reliable tenants similar to the family you currently have in your townhouse. This step is about generating income from your investment. Refinance: Once the new properties are stabilized (occupied by tenants and generating income), look into refinancing them based on their new, improved value. This step is critical as it allows you to pull out much of the original capital invested, which you can then use to repeat the process. Repeat: Use the funds from refinancing to invest in additional properties, repeating the BRRRR process. This method could potentially allow you to expand your real estate portfolio more aggressively than simply selling your current property and buying a couple more. It leverages the concept of using "other people's money" (in this case, bank financing) to grow your investments. However, it's important to consider the risks involved, including over-leveraging, the costs associated with rehab, potential vacancies, and the complexities of managing multiple rental properties. Given your conservative investment approach, it's essential to carefully assess these factors and perhaps start with one additional property to get a feel for the process before scaling up. Consulting with a real estate investment advisor or a financial planner who understands the BRRRR method and your local market conditions can also provide personalized insights and help you make an informed decision.

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@Dave Foster awesome to hear. Thanks for expanding on this!

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I also have a couple of properties in Clayton. Great area! I see two options here:1. Cash-out refi- Pull the cash out, but ensure you are still cashflowing with the new payment, and buy more properties. Tax free. But you payment will increase and depending on the interest rate it may not be optimal. 2. Sell via a 1031 exchange and maybe a reverse 1031 exchange if you have the fund already in hand- Remember, you have to find a new property within 45 days. I don't think you can split up a 1031 across multiple properties but, it sounds possible. Might be a issue here in your case. If you sell straight up you will have long term cap gains on this unless you lived in the property 2 out of the last 5 years. If it were me, I would ask myself why I am selling and why do I really need more properties? What am I gaining? I would hold on to the property and see what interest rates do then do a cash-out refi and buy a couple extra properties then. Clayton is a growing area. And I rarely hear a RE investor who regretted holding on to a property.

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Being in a similar situation, Im currently trying to find a lender who will give me a heloc on a rental property. It could be a great way to leverage the equity and scale using the BRRRR method or even just flip houses

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@Chris Waugamanwell, depending on your strategy and goals...You might want to sell, outright or via 1031, so that you can take that equity and scale into more properties. borrowing against just has your paying, via interest, for your own money. Of course, this assumes your strategy and goal is to scale into more / larger properties. If you don't or can't take on more properties....Its great that you have such steady tenants. Its hard to find good tenants... No easy answer here.I bring up selling outright because everybody jumps to 1031. But, you might want to see what is your true tax liability. You are probably banking up Passive Allowed Losses (PAL) that helps to offset the gain. I've seen too many scenarios where its cheaper actually to pay the tax than other options. That being said, figure out your exit strategy as well. Too many "retiring landlords" are spiteful or unable to pay the tax to access their equity/cash to retire.Hope this helps. Happy to chat. Good luck.

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@Aaron Arnold I am learning this BRRR method. Hope I can scale my portfolio too after I rent out my first SFH. Thanks for explaining clearly!

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Thank you for advice. I really appreciate it.