Analysis for Rental Investment (Please Help!)

[Javier Guanda]

Hi! Everyone,

                        I will appreciate some advice on the following scenario. I have 40k to invest in a new rental but not idea how to proceed with the analysis and numbers. I'd like to buy a Townhouse in Miami and my overall financials are as follow:

I own a Townhouse already, paid off (145k).

I own a house with an mortgage of 355k.

I have 40k in cash (+ 1 year of security cash).

I was wondering if a HELOC on the paid off town house would be a good strategy or just keep saving money? Someone mentioned to me the HELOC as an opportunity to buy with cash and get better deals.

And the last question: I understand that prices are climbing fast and a peak would be reached in (2018-20)? I don't know if buying now is a good choice or just wait 5-7 years until prices decrease again? In that case the opportunity cost of X years of loosing income from rental would be high.

I will appreciate any advice. Thanks! Javier

[Jonathan Taylor Smith]

My two cents... There's no time like the present! Don't wait 5+ years for some magical moment in time that may never come or for which there might be some other excuse at that time to remain on the sidelines. In regard to HELOC... I used the equity in my primary residence to buy my second rental. I used a loan from my 401K (TSP) to buy the first. In both cases the properties have excellent cash flow and bring a return that far exceeds the cost of the cash.

Equity sitting in your home or other properties is potential cash that is not working for you. If you use that equity for investment property purchases that have excellent cash flow and return twice or more on the cost of the cash, then it is worth doing (in my opinion). If you focus on cash flow instead of price / value appreciation, then you are good... avoid becoming a price speculator when trying to be an investor.