Should I pull some equity to purchase an STR?

Question

I’m going to consult a local financial planner but thought I’d ask the brilliant minds at BP as well. My wife and I own 3 properties in Colorado and are considering pulling some equity to purchase an STR in the Tampa Bay Area. Currently speaking with a local realtor about the STR zoning issues, insurance issues, and current/future market in Florida. 2025 should be a good time to look for a property there.

1. Is an LTR with a paid off mortgage. Appraises for $325k. Has a $100k Heloc on it that’s being paid down. Rent is $2k/month.

2. Is an LTR with a $290k mortgage ($1900 payment). Appraised for $525k and is rented for $2800 month. It carries a $50k Heloc that’s being paid down.

3. Is our primary residence and is a long term live in flip. $490k mortgage. The $50k Heloc on house 2 was used to begin renovation here. We plan to live here for 2-3 years and sell. Should appraise for $660-700 when completed.

I’ve been told I still have a lot of equity in #1&2 just “sitting around” and it should be put to use rather than just sit there.

My concern is that I might be over leveraging myself if I try pull out a 20% down payment for a DSCR loan.

Any thoughts is you were in this situation?

TIA

Julian De la Guardia · Answer

You know, I’ve had a few moments where I’ve scratched my head wondering if I was getting too cozy with my home equity, but pulling out those funds for a strategic investemnt has, more often than not, led me to some pretty sweet opportunities. Think of it like this... If your property has been chugging along quietly, building up equity in the background, that equity’s not exactly getting a standing ovation sitting there doing nothing. Sure, it’s easy to get nervous about over-leveraging... no one wants to feel like they’re juggling flaming torches while balancing on a high wire. But, in a market where short-term rentals in areas like Tampa Bay are on the rise... and I mean, last time I chatted with an investor-focused agent down there, she mentioned neighborhoods around St. Pete Beach and Treasure Island heating up, it might be worth tapping into that dormant potential. I'm sitting in Omaha these days, but I’ve got a soft spot for these strategies because I’ve seen clients pivot from holding tight to their equity, to making bold moves that expanded their portfolios in ways they never imagined. One guy I worked with...an old friend, actually...was petrified of taking on more debt until he snagged a short-term rental in Austin that practically doubled his monthly cash flow after a few months.

Now, let’s not sugarcoat it. Florida's insurance issues and zoning regulations can be a pain. I've heard from local investors in Tampa referencing recent changes and local property managers grumbling about red tape. If you talk to someone like the folks at Wren Insurance Agency (from what I read in the Wall Street Journal), you’ll find they’ve been adapting to the shifting market conditions with some interesting coverage options. Still, if you’ve got someone on the ground who truly knows how to navigate these waters, it’s like being handed a map with all the back roads highlighted. I’ve got a network that stretches into San Antonio, Phoenix, Chicago, and beyond... from what I’ve heard, when you team up with the right people, you’re not just investing in a property, you’re investing in a support system. For instance, a close buddy of mine in Chicago told me about a client of his who pulled out equity from a sleepy duplex and funneled it into a fourplex near Logan Square. That move felt risky at first, but the guy ended up calling me three months later, thrilled that those subtle changes in leverage gave him a disctreet edge. So, yeah, consider using that equity. Just be ready for the ride...it’s not always smooth sailing, but if you play it right, those jitters can turn into some seriously sweet returns.

And if you do end up jumping on a short-term rental in Tampa Bay, just pick up the phone and let's dig into it. I’m not going to pretend like I've got a crystal ball, but I’ve been around the block enough times to point you in the right direction. And hey, if it doesn’t work out, maybe I’ll owe you a coffee next time you’re passing through Omaha. We’re all just trying to figure this out, right?

Jasper & Julian

John Underwood · Answer

I use equity to buy lucrative investments with solid returns.

So if you can find a property that pencils out to be a great investment, then absolutely.

Patrick Osterling · Answer

Hey @Ben Cochran

Bill Faeth from Build Short Term Rental Wealth has discussed this concept, which he calls “Return on Equity.” He has some great YouTube videos that break down the equations, strategies and how to think about repositioning equity. This is especially important if you're on the younger side, as those returns can compound significantly over the next few decades.

I'm in a small real estate mastermind group, and we all did this exercise with our own portfolios and identified underperforming properties and equity to reposition, and presented it the group for feedback. This helped us strategically reposition and continue growing our portfolios.

Andrew Steffens · Answer

Thanks Michael!  Ben, I own an STR management company with 60+ doors as well as a broker that specializes in STR acquisitions.  You definitely want to buy in the right area, both legally and financially speaking. Let me know if I can be of any assistance!

Michael Baum · Answer

Hey @Ben Cochran, I am with @John Underwood. Using equity can really build up some wealth.

i would get with @Andrew Steffens if you are looking in Tampa. He has tons of knowledge about that area and manages a lot of STRs there.

Ashish Acharya · Answer

@Ben Cochran I hope you have factored STR tax savings into your cashflow and ROI as it can be significant.

Leveraging equity to purchase a short-term rental (STR) in Tampa Bay can diversify your portfolio and potentially generate strong cash flow, but it also increases your financial risk.

While your properties hold significant equity, adding debt from HELOCs or a DSCR loan could strain your finances if STR performance fluctuates or costs rise. Ensure the STR’s projected income comfortably covers new debt, even with conservative occupancy rates, and maintain reserves for market changes or vacancies.

Work with a financial planner to evaluate cash flow projections and confirm this move aligns with your long-term financial goals. If risks feel too high, consider waiting until your live-in flip is complete and your position is stronger.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Mike H. · Answer

I think a big missing piece from the puzzle is where are you at personally with your income. Equity and cash flow are equally important when deciding whether to pull money out.If you can put the equity to work by adding another property while still having a nice cushion on your cash flow, then I would say definitely yes.  If you were to refinance property one and pull out another 100k (lets assume a 500k house in tampa that you need 100k for a down payment), you'd be paying 6.5% or so on that 100k.  Now you have to see what your returns would be on a 500k str property there.Lets say you were to net 5k a year in rental income, there's 5% right there.  Add in the principal paydown on the investment property which would be another 5k. And now another 1k of principal paydown per year on the 100k additional money in the new loan. Now you're at 11% return. And then add in the typical appreciation of say 3 to 5% (of 500k). Another 20k?  Now you're at 31% return.Now thats making a couple of key assumptions - 1) the property you're buying is around 500k. And 2, that the property with 100k down will have a 400k mortgage and will net you 5k a year. And that may not sound like much.  But what does that look like in 10 years.  That property might be making 15k to 20k a year in rental income.  It might be worth 700k by then.  And you would now owe about 330k by then so you would have gained 370k in equity in 10 years.  All from taking out 100k on one of your properties.The key, to me, when deciding to use more leverage for growth. First and foremost, is the property you're going to use the money to buy a good investment.  And then the second item is - if you do take out more money, where does that leave you from a cashflow standpoint.   Again, you appear to have two long term rentals. If one of those people doesn't pay or they move out, you're taking a hefty hit on your cash flow for sure.  Does your personal income give you enough of a cushion to handle that.  If it does, then to me the answer is absolutely clear - take that money out and add more property.You will thank yourself a million times over when you see what that choice becomes in another 10 years. btw: I would add that I am very skeptical of anything in florida these days.  I did some mobile home deals down there (4 total) and the change in immigration laws and the recurring storms has really dented the demand down there.  Then again, as an STR I'm not sure that matters as much because you're not selling the home, you're renting to vacationers so that shouldn't be as affected.  And the benefit to all the chaos with the last two storms Is you should be able to negotiate a killer deal on a purchase right now. I would put in lowball offers (75 to 80% of list) on every house you're interested in and see if somebody bites. You're an investor. You should never pay retail! If you can walk into the deal with some nice equity then it gives you more options in case you want to get out of the area.

Bruce Woodruff · Answer

I have a couple of different thoughts. Not saying not to pull equity and keep going.....but you've got a little over $400k in 1and 2 and another $100k+ if you throw in #3.....right? So you could pay cash for a nice little STR.

1) There's nothing wrong with sitting on some equity. Unless and until you have a sure money maker. Which leads us to:

2) Are you 100% positive that a) an STR, b) in Florida, c) right now, is the best place to put your hard-earned equity?

I just got a funny feeling about it when I read your post. Maybe it's just me though......But you don't have to have your equity working for you perfectly every second of your life. Just relax for a while and see where the country goes next year.

Mackay Oakey · Answer

I'd agree with John's simple take here. If the deal makes sense and the returns make sense, go for it. You've clearly been here before, so if you're hesitant, maybe it's with good reason?I would definitely pull up Excel and do some of your own calculations to figure out how things will look. Otherwise check out the BP calculators if you're having a hard time getting started.

Raymond J. Rodrigues · Answer

@Ben Cochran I would say about 30% of all my business resides in the Tampa Bay Area. The STR regulations are very black and white and I don’t see many, if any, clients having issues with obtaining insurance if the house is in good condition. Of course we just had a few hurricanes, but that doesn’t make it extremely difficult to get insurance. If you are looking to work with a STR focused realtor that probably has the most STR sales in the area, is an STR investor himself, has a STR property management company and assists with staging if needed, and can give you a true pulse on the market, I recommend reaching out to @Josh Green. He’s helped a ton of my clients in the past.

Should I pull some equity to purchase an STR?

Most Popular Reply