Do I leverage my equity or sell and use cash?

Question

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

Respectfully,

Brian Kalb

Corby Goade · Answer

@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.

Joe Villeneuve · Answer

"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.

Joe Villeneuve · Answer

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 · Answer

PM me direct.  This format isn't conducive to what you want.

Corby Goade · Answer

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!

Joe Villeneuve · Answer

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.

Frank Wong · Answer

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.

Corby Goade · Answer

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.

Account Closed · Answer

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 · Answer

@Corby Goade - I've been looking into doing something similar. Any particular reason you mentioned holding for 6 months?

Do I leverage my equity or sell and use cash?

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