LA Property with lots of Equity

[Anna Brown]

I purchased my Los Angeles (Compton) 4-bedroom home in 2013 for 240K; according to Redfin, it is now worth 686K. 2 years ago the entire house was completely renovated (Insurance claim) due to a burst pipe that caused extensive damage while vacant. I'm not sure what I want to do or what my options are. I've been thinking I would like to fix the outside landscaping/fence/Kitchen cabinetry and roof so I that I can get the max rent or just sell and buy in the midwest, 1031 exchange (not sure if I qualify). I mainly would like to expand my portfolio using the equity but am hesitant to refi because my current rate is 3.3%. Even Airbnb would be an option but I'm starting to feel like I need a partner who knows what they are doing to guide me. HELP!!

[Travis Biziorek]

Quote from @Mike Day:

Interesting. I'd probably take out a HELOC and use it to invest in rentals out of state. $400k could be the down payment on eight small houses in the Midwest. This is your best cashflow option since nothing other than the situation you've lucked into is going to cashflow in California. This also allows you to keep the incredibly low-interest loan you currently have, and to only use the funds as you need them to acquire each new property.

This probably isn't a great idea. 

Yes, she could put 25% down on a handful of midwest properties that might cash flow but then what? They aren't going to be cash flowing enough to cover the HELOC payments. And she'll be borrowing money at a higher rate of return than he'll earn from the properties he'll buy.

Using a HELOC is only smart if you have a plan to pay it back. That often means flips or BRRRR's where you're going to leave a fair bit less than 25% of the ARV in the deal.

Anna, a 1031 isn't an option since this is your primary residence. I'm sure if you moved out and bought something else, turning this home into a rental, there's probably an ability to do that down the road. But if you're married you'd get $500k tax free upon the sale of this home anyway. If you're single, that number is $250k.

Another option would be to pull a HELOC and use that to put as little money as possible down on a duplex that you could house hack. Then move into that and use the rental income from this home and the second duplex unit to aggressively pay down the HELOC.

I'm all for out-of-state investing in the Midwest (I own 12-doors in Detroit from California) but you have to be really smart about how you approach it. And if you have the option to stay local you likely should.