Utilize the equity in my rental duplex, or should I trade?

[Eduardo Zepeda]

Hi everyone,

I'm hoping to either get pointed in the right direction for a lender, or get some feedback on a question of whether I should consider "trading up" out of the property I own.

I own a duplex in Richmond, Ca that I purchased in March of 2017 for $362,000. As part of my career advancement in real estate investing, I'm looking for access to more capital to reinvest and fund deals. I've been fortunate enough through my research and what I learned here on BP to have bought a solid investment property, which of course started with having the knowledge to identify and recognize the opportunity for what it was worth and act on it. The duplex currently grosses $3,600 per month. The property currently cash flows me about $790 per month after debt service and all expenses and the property management fee. Honestly, it's been a great property to own so far (I know the time is limited)  and the current tenants, on top of paying their own utilities, handle a lot of their own maintenance, too.

As an investor I'm in full acquisition mode and looking to acquire additional properties, deal permitting, and scale up swiftly. What I'd ideally like to do is tap into the equity in the property so that I can retain the property. Currently there's about $345k left on the loan balance. The issue then with refinancing and getting cash out is that the max LTV on a multi unit investment property is 70%, from what I understand. Similarly, the lenders I've researched that offer equity lines on investment properties are limited in their combined LTV. While I know the property has appreciated based on the market, I'm not sure what the property would appraise for, but I could tell you what I think investors would pay for it based on an NOI of ~$33,000 at the cap rates properties are trading at in the bay area.

So, if I can't borrow against my theoretical equity, the thought of selling and trading into a larger property had come into play to put that equity to work in a better way. I'm thinking that if I could trade up into another property that yields at least $800 of monthly cash flow, then that's probably worth it assuming I'll be rolling it into a larger property with either more scale or opportunity for appreciation. Let's assuming that after backing out commissions from a sale at $520k, I use that since price since that would make it a 6.4% cap, then I net a gain of $155k, then I'd need to target a cash on cash return of 6.1% or higher (my current return on equity). Am I right in that logic? 

For the record, I'm not claiming that I believe the duplex would sell at that price. I know that sort of appreciation in 18 months might seem crazy, but then again, maybe I just bought at a significant discount ;).

I'd love to hear what you guys think. Thanks in advance.