Financing / investment options when you have equity but no cash

[J Newman]

I'm now managing my family's real estate portfolio that's basically just been sitting there being used for cash flow. No new real estate has been acquired in 10+ years. I want to explore some options to exchange some of our underperforming and older properties for other opportunities. I'm also getting the financials straightened out with a CPA firm who specializes in this, so there's no cash for investing yet, but there is 100% equity. All of it's paid for - 60 doors. I'm not sure on what financing options are available in this situation. I also feel strong pressure to get this right because my Dad and I are co-managing, and he has almost zero risk tolerance to invest. When I mentioned a 1031 exchange, he told me that I was starting to believe in the Easter Bunny again. :-)  I'm trying to educate myself, make connections in my area with real estate agents, other investors. I probably need to talk to lenders and hear my options. I have got some meetings set up, but I would love any suggestions. 

[Dave Foster]

@J Newman, let your dad know that the Easter Bunny of 1031 has been around since 1920 :). I think there might actually be a way to both grow your portfolio and respect his conservative nature using the 1031 exchange.

You mentioned that your properties were held in cash.  Rather than simply accessing part of the equity using a cash-out refi you could sell one of those properties and use the proceeds (now with 100% of the equity available including the deferred tax) to purchase two replacement properties.  

Since you can allocate those proceeds any way you want, one of your purchases will be for cash.  The second property will be purchased with a mortgage (you can determine how high or low the leverage will be by adjusting the proceeds you use or the price point of the 2nd replacement).

You are adding some measured debt at a level that your dad can be comfortable with.  And you're continuing to add or maintain the same number of free and clear properties.  And you did this without paying any tax.