Should I leverage my equity and add to the portfolio?

[Micah Jackson]

I have two STR properties in the Gatlinburg area. Currently owe $13,000.00 on cabin #1 and $235,000.00 on cabin #2. Each cabin would currently appraise between $900,000 and $950,000. I am trying to decide if I should leverage and purchase another property or payoff property #1 and then aggressively payoff property #2. Property #2 has a 2.9% rate and has 11 years 5 months left on the mortgage. Property #1 has a P and I payment of $2,000.00 a month that will be freed up soon. I have used the cabins profit to payoff cabin #1 the past few years. Both cabins gross around 75,000.00 to 80,000.00 each year and net around 55,000.00 to 60,000.0 per year.

I also have a commercial property worth 500,000.00 and owe 86,000.00 on it.  The interest rate is 5.4% on the commercial loan and it either needs to be paid off or refinanced in 3 years.  The payment is currently $1,100.00 per month.

My thought was get a Heloc or cash out refinance on cabin #1 and buy another STR rental with cash or also do a cash out refinance on the commercial building to have more cash to work with.

[Tyler Solomon]

Micah, this is ultimately up to you and your personal investing goals. As many others have noted, your current debt is extreemly cheap at 2.9%. If expansion is not a necessity for you at the moment, then I would stay in a holding pattern with your virtually free money. However, if you are eager to expand, then tapping into some of the equity in your first home through a low leverage cash out is how I would attack this if I was in your position. Pull out enough cash to put a significant portion down on a new aquisition to keep debt service costs low, while also keeping debt service costs on the leveraged (first) property low enough to cash flow at todays rates. This gives you the power to expand, keep a house with less equity paid down at a cheap rate, and continue expansion.