Portfolio Growing Pains - Best options to continue to grow my portfolio

[Dan Maez]

I currently have 4 long term single family/townhome rental properties, a primary residence and one townhome my brother and I went in on for our mother that doesn't generate any cash flow. All properties currently also have quite a bit of equity built up. I am at a point where I can't get any more traditional loans due to my DTI. The mortgages are under my name with the exception of the one my brother and I went in on together, that one is under both of our names. The titles for the 4 rental properties have also been transferred to my LLC. I also have $20K cash and $170k available in a HELOC (the rate varies on this but is at about 8.25%).

I would like to continue to grow my portfolio but with conventional loans no longer an option right I am finding it hard to keep growing. One of the problems I am coming across is that the current loans I have consist of lower rates compared to the current rates out now (Rental 1 - 3.125%, Rental 2 - 3.75%, Rental 3 - 3.375%, Rental 4 - 5.99%, Mom's - 3.125%, Primary - 3.25%). If I were to do a cash out refi to access any of the equity I have built up in the properties I would be losing out on cash flow due to the current rates being much higher than my existing rates.

I have been toying around with the idea of selling the rental properties and doing a 1031 exchange into a small multifamily building or multiple duplex/quadplex's once all of the leases expire next year in hopes that the interest rates will have dropped by then. If I did this I would be putting the new properties into the LLC freeing up my DTI under my personal name to buy more single family homes and repeat the process into more multifamily properties. My fear with this plan is the same as the cash out refi option that I might lose out on cash flow due to the higher rates on the new properties.

I would like to keep the properties I currently have but if I have to part with them to grow I am willing to do it. I have been doing a little research on Hard Money Loans and DSCR Loans but I would like to see what this community thinks given all of these puzzle pieces and any recommendations you all may have. Thanks!

[Kevin Sobilo]

@Dan Maez, I'll simplify how I would look at this.

Let's assume you sell one property with a low interest rate and buy 2 replacement properties at a much higher interest rate,

Maybe the total positive cash-flow on the replacement properties is about equal to the original property. So, you feel like you are having double the property management work for the same return into your pocket.

However!

1) You have a more mortgage pay-down each year on 2 properties than you would on 1 property. So, equity is building that way.

2) You own MORE real estate, so you gain MORE from any market appreciation over time.

3) You have MORE depreciation deductions because you own more real estate. So, you pay LESS in taxes than before. So, even with the same cash-flow you KEEP more of it!

4) You date the rate but marry the property. So, you can eventually refinance when rates are better to increase your cash-flow.

So, if you want to grow and can find decent replacement properties, it can be worthwhile in the long run even with higher interest rates now.