Do I leverage my equity or sell and use cash?
Rental Property Investor · Santa Clarita, CA · Member since 2019 · 6 posts · 0 votes
Looking for some advise. I bought a condo back in 2003. I was able to hold on to it through the 2008 market crash. Right now it's renting and I have an ROI of about $500.00. Recently I've decided to start investing in rental property. I live in California and am looking to invest in out of state rentals do to high prices and rental laws here. To my point I was hoping to get suggestions on what people out there would do if they were in my shoes. First I was thinking of selling the property and using the equity I made to either by three houses in the $50,000 range or use the money to put 20-25% down on multiple loans and buy upwards of 6-8 investment properties in that price range depending on how things go? Or keep the condo in California and take a HELOC on it and use that money to either purchase properties for cash or use it for a 20-25% down payment loan to buy a few more than I would be able to if I would purchase out right. Basically same thing. Sell or use a HELOC? I hope that made sense everybody and any advise would be great.
Respectfully,
Brian Kalb
Hi Brian,
I am not a fan of pulling a heloc out and using that money to leverage to buy more properties. First I don't like the idea of increasing your debt on your investment property to buy properties with more debt. It only makes sense if you are pulling money out to buy a 2nd investment cash. That to me is the proper way to leverage.
If you are going to sell the condo I would look for homes in B areas. You are going to be way better off in the long run. Buy fewer homes in better areas.
I would not sell the property and buy 3 $50k properties in the midwest. Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion. There is a reason why they are $50k. Buying them because they are $50k is not a good reason.
"Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion."
Wrong!! Dead Wrong.
"Buying them because they are $50k is not a good reason."
Correct.
Hi Brian,
I am not a fan of pulling a heloc out and using that money to leverage to buy more properties. First I don't like the idea of increasing your debt on your investment property to buy properties with more debt. It only makes sense if you are pulling money out to buy a 2nd investment cash. That to me is the proper way to leverage.
I would not sell the property and buy 3 $50k properties in the midwest. Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion. There is a reason why they are $50k. Buying them because they are $50k is not a good reason.
If you are going to sell the condo I would look for homes in B areas. You are going to be way better off in the long run. Buy fewer homes in better areas.
Hi Brian,
I am not a fan of pulling a heloc out and using that money to leverage to buy more properties. First I don't like the idea of increasing your debt on your investment property to buy properties with more debt. It only makes sense if you are pulling money out to buy a 2nd investment cash. That to me is the proper way to leverage.
If you are going to sell the condo I would look for homes in B areas. You are going to be way better off in the long run. Buy fewer homes in better areas.
I would not sell the property and buy 3 $50k properties in the midwest. Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion. There is a reason why they are $50k. Buying them because they are $50k is not a good reason.
"Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion."
Wrong!! Dead Wrong.
"Buying them because they are $50k is not a good reason."
Correct.
Looking for some advise. I bought a condo back in 2003. I was able to hold on to it through the 2008 market crash. Right now it's renting and I have an ROI of about $500.00. Recently I've decided to start investing in rental property. I live in California and am looking to invest in out of state rentals do to high prices and rental laws here. To my point I was hoping to get suggestions on what people out there would do if they were in my shoes. First I was thinking of selling the property and using the equity I made to either by three houses in the $50,000 range or use the money to put 20-25% down on multiple loans and buy upwards of 6-8 investment properties in that price range depending on how things go? Or keep the condo in California and take a HELOC on it and use that money to either purchase properties for cash or use it for a 20-25% down payment loan to buy a few more than I would be able to if I would purchase out right. Basically same thing. Sell or use a HELOC? I hope that made sense everybody and any advise would be great.
Respectfully,
Brian Kalb
Your plan would be correct...and you would not be the only CA REI that followed that plan to success. Many CA REI flip in CA, and take their profits to buy the same properties for cash flow in the MW.
You can't force a market to do what it doesn't want to do...or is incapable of doing, just because it's what you want it to do. The Market rules.
You can, however, move your money into a Market that does exactly what you want it to do, and is fully capable of doing it on a regular basis.
Hi Brian,
I am not a fan of pulling a heloc out and using that money to leverage to buy more properties. First I don't like the idea of increasing your debt on your investment property to buy properties with more debt. It only makes sense if you are pulling money out to buy a 2nd investment cash. That to me is the proper way to leverage.
If you are going to sell the condo I would look for homes in B areas. You are going to be way better off in the long run. Buy fewer homes in better areas.
I would not sell the property and buy 3 $50k properties in the midwest. Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion. There is a reason why they are $50k. Buying them because they are $50k is not a good reason.
"Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion."
Wrong!! Dead Wrong.
"Buying them because they are $50k is not a good reason."
Correct.
Hi Joe,
Just to clarify you think it will be safe for an out of state investor to buy a $50k property in the midwest? They can buy knowing that the tenants are great and will be trouble free? Since you live there you probably have the highest experience in your local market which will allow you to cherry pick certain streets that may not be bad. An out of state investor will never have the knowledge of a local investor.
Are all the $50k properties in D areas have the worst tenants? All mean 100%, No. Sure there are exceptions to the rules but I am playing the percentages. I don't think its safe for out of state investors to invest in those areas and many would agree with me.
Hi Brian,
I am not a fan of pulling a heloc out and using that money to leverage to buy more properties. First I don't like the idea of increasing your debt on your investment property to buy properties with more debt. It only makes sense if you are pulling money out to buy a 2nd investment cash. That to me is the proper way to leverage.
If you are going to sell the condo I would look for homes in B areas. You are going to be way better off in the long run. Buy fewer homes in better areas.
I would not sell the property and buy 3 $50k properties in the midwest. Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion. There is a reason why they are $50k. Buying them because they are $50k is not a good reason.
"Those are D class properties and areas. Worst tenants and the worst areas. Not worth it in my opinion."
Wrong!! Dead Wrong.
"Buying them because they are $50k is not a good reason."
Correct.
Hi Joe,
Just to clarify you think it will be safe for an out of state investor to buy a $50k property in the midwest? They can buy knowing that the tenants are great and will be trouble free? Since you live there you probably have the highest experience in your local market which will allow you to cherry pick certain streets that may not be bad. An out of state investor will never have the knowledge of a local investor.
Are all the $50k properties in D areas have the worst tenants? All mean 100%, No.Sure there are exceptions to the rules but I am playing the percentages. I don't think its safe for out of state investors to invest in those areas and many would agree with me.
No...I don't agree with you. It isn't any more or less safe than investing in your own backyard. The need for Market Analysis is still the same. The only things that are different are the Zips.
Now, having said that, the REI (in state or out) still has to do all the same D.D. and Analysis. To say in one statement, "..Are all the $50k properties in D areas have the worst tenants? All mean 100%, No... " and then follow that up with this statement "...I don't think its safe for out of state investors to invest in those areas and many would agree with me....", is a bit inconsistent....and based on all the CA REI that invest for cash flow here (I meet them on almost a daily basis), I'd say many would agree with me too. The difference is mine are getting what they want.
I partner with CA investors all the time. All you need is someone with "boots on the ground" to fill in the void. It still comes down to the numbers with dollars sign in front. The rest is easier to research.
Personally, I am a big fan of using a HELOC to acquire new properties. The key is having an exit strategy so that you can pay off the balance on the HELOC as soon as possible. If your cash flow allows you to do that quickly, great. You can look for deals that you can BRRRR, as long as you can force 25% equity and hold it for six months, you can pay of the HELOC with a cash out refi.
Lots of great markets out there that aren't in the midwest- there are tons of CA buyers picking up rentals in my neck of the woods.
Good luck!
@Corby Goade - I've been looking into doing something similar. Any particular reason you mentioned holding for 6 months?
@Corby Goade - I've been looking into doing something similar. Any particular reason you mentioned holding for 6 months?
I can answer that one. Most lenders require at least a 6 month seasoning period before they will refi a "cash out" refi.
@Joe Villeneuve is correct- the exception to that is delayed financing, which is a bit more complicated. You can check out the requirements here: https://www.fanniemae.com/content/guide/selling/b2...
I've closed on delayed financing loans a couple times, and in hindsight, I should have saved myself the stress and just waited the six months for conventional.
Thanks @Corby Goade & @Joe Villeneuve. That makes sense that you'd need to hold for at least 6 months.
@Corby Goade - What's the typical price range of the properties you've worked on with that process?
@Account Closed, the couple I've done, I've picked up for around $80k, put about $15k in and had appraisals in the $120-$130K range. Paint, flooring, light fixtures, hardware and landscaping can go a long ways on a neglected property.
Thank you all for your posts. Joe I was hoping for some advise. I am trying to educate myself before I start my investment process. My question is how do you feel about turnkey investment properties. I have a family and work for the fire department out here in California and am the main source of income. Needless to say I don’t have a lot of free time. I was looking to do turnkey because it’s hands free as far as rehab goes. I Understand if I do it this way I won’t be able to take advantage of making appreciation off the property. I have a rental as I mentioned and wanted to start with using my heloc. Buy one, pay off the heloc ASAP and hopefully repeat? The heloc would only be used for my down payment and closing costs and then the mortgage would be 30 year fix and use that method to hopefully bye more. Would you be able to give me any advise or suggestions to my thought process? Thanks for your time!
There has definitely been a lot of good advise here and I agree with both @Joe Villeneuve and
@Frank Wong however, it definitely depends on what your ultimate goals are.
I've done both, I've sold a few properties and reinvested the gains in lower price point properties and I've sold a few properties and invested the gains in appreciating properties.
Recently, I refinanced my multi-unit here in Los Angeles and bought a few properties in the $75K range in the mid-west and they cash flow very well! In my opinion if you find the right market and the right property manager the investments should not take more than one (1) hour per week.
You can also sell your condo here in the Santa Clarita market, find a multi-unit property, let your renters pay for part of your mortgage and then buy a few reasonably priced properties that cash flow in the mid-west.
If I was in your position there are two for sure options;
1. Refinance the condo and then buy two or three cash flowing properties in the mid-west. or
2. Sell the condo, buy a income producing multi-unit in Santa Clarita and then buy one or two cash flowing properties in the mid-west.
If you can't refinance then do the HELOC and buy one cash flowing property in the mid-west.
Thank you all for your posts. Joe I was hoping for some advise. I am trying to educate myself before I start my investment process. My question is how do you feel about turnkey investment properties. I have a family and work for the fire department out here in California and am the main source of income. Needless to say I don’t have a lot of free time. I was looking to do turnkey because it’s hands free as far as rehab goes. I Understand if I do it this way I won’t be able to take advantage of making appreciation off the property. I have a rental as I mentioned and wanted to start with using my heloc. Buy one, pay off the heloc ASAP and hopefully repeat? The heloc would only be used for my down payment and closing costs and then the mortgage would be 30 year fix and use that method to hopefully bye more. Would you be able to give me any advise or suggestions to my thought process? Thanks for your time!
PM me direct. This format isn't conducive to what you want.
I would be cautious of buying property out of state. It is too difficult to get to for inspections, rent collection etc. Which would require a property manager. I prefer to stay local where you understand the market, is in a desirable area that people want to live in. This will help with appreciation and resale values. Don't over extend yourself in the high priced market so that you stress yourself out when the market makes its next correction. Sometimes less is more!