How to utilize equity from rental?

Question

Hello everybody!! I live in the boom/bust roller coaster environment of the Permian basin and my profession is as an architect. I really like my job and the company I work for and have no plans on leaving, but would definitely like to supplement my income with some additional rental property.

This leads to this post. My wife and I have inherited a house in Henderson, NV that we've been renting out since 2010. It has been a great little bit of additional cash flow for us, but we haven't taken full advantage of the equity that we have in it. We'd like to buy another property, (eventually wind up with around a dozen or so), and be able to rent them out for around 500$ per month positive cash flow. The rub is that we don't have very good credit. I have been listening to the BP podcast a lot lately and it has gotten me motivated to make some better use of the equity that is available in this rental (conservatively there is 50k equity), and use it to leverage the purchase of another or couple other houses to get rented out. We've been using a property management company for the duration, and I suspect that they would have a pretty good idea of some deals to be made.

I'm just not sure how to utilize this equity that is available. Can anybody give me some thoughts or suggestions? I can give more info if it's needed.

Thanks in advance!!

Cliff Mitchell

Brent Coombs · Answer

@Cliff Mitchell, that's a great goal you have. However, reading between the lines, SOMETHING has gotten in the way of you keeping your credit score up. Until the REASONS for that are overcome, your investment goals may well keep outpacing you. Do you agree? All the best...

Chris Allen · Answer

Of course being an architect helps with construction knowledge, we are the ones that design the buildings!

Jacob Anderson · Answer

You could get a HELOC to buy another property. Keep doing this on future properties. Have fun.

Stephanie Hardy · Answer

Oh ok. Well, l new to RE investing myself. We are in contract with our first rental property! However, I've been on BP for some time now and have read a lot of advice and have listened to many podcasts. From what I've learned, it is mentioned often about using equity in existing properties for down payments on more properties. @Brandon Turner has his BRRRR (Buy, Rehab, Refinance, Rent, Repeat) strategy that he promotes a lot. Not sure how an architect career might be able to help you in real estate - does it help with construction knowledge at all? If you were able to buy low, rehab it, then refinance it at a higher appraisal value, you could take the equity gained from there and do it over and over again, theoretically. Maybe someone else is able to offer any other ideas. Best of luck, though!

Tom V. · Answer

Hi Cliff,I agree with what Brent Coombs said.If I were in your shoes, I would get my personal finances (and credit) in order before even thinking about taking on other financial goals. You need to identify and correct those reasons that you got into credit trouble in the first place, and get your own financial house in order first. Otherwise, buying more rental properties will end up being a nightmare instead of a blessing.I wish you the best of luck, Cliff!

Cliff Mitchell · Answer

there is no question that I could've made some different choices regarding my credit. But that's a whole different story there. It's part of the reason that I'm looking to acquire additional income streams.In any case, do you guys know of any way I can leverage what equity I have? I suppose I could attempt to get a second and then use that money for a few down payments. Loans are still cheap even with bad credit.Shoot me some ideas!!

Cliff Mitchell · Answer

Thanks for the quick reply Stephanie! I went to Texas Tech, so I'm quite familiar with Lubbock myself!! I should mention, we do already have a HE loan on the property in Henderson with quicken loans. They are pretty easy to work with for sure. The 50k I've mentioned is what else I estimate I'd be able to get with a second HE loan.

Stephanie Hardy · Answer

Hey, Cliff! I'm born and raised from Lubbock and sure miss the amazing Texan folk!You might be able to refinance the home to get some cash out, but you most likely will be able to only cash out up to 80% of the value of the home, keeping 20% equity in the home. A lot of lenders don't like to do cash out refis with less than that. If you are able to get the cash, you could use that for a down payment on the next home you find. I would suggest to talk to a loan person and see what you can qualify for with your credit situation. You can ask them about refinancing the home, too.