First Post: What Next?

[Jordan Propp]

Looking for some feedback on planned next steps and how best to execute on them.

I currently have 2 rental properties and am looking to acquire a third through the HomeReady plan in Chicago as my first house-hack and first multifamily (2-3 flat). As I’m saving up for the down payment I’m starting to consider whether it would make sense to re-finance or sell one of the other properties.

The first rental was my own townhome that I lived in for 3 years before starting to rent it out. It doesn't really check the boxes of an efficient rental property (less than 1% rent to value, low cap rate, tied to an HOA, etc.) however it performs well in that I cash flow positive every month, it's new and doesn't require much (if any) maintenance yet, and my tenants pretty much never bother me and keep the property in really good shape.

The biggest problem it has is that I have around 75% equity in it but find it really hard to refinance to pull money out since it’s sitting with a 2.75% rate right now. It performs well each month and doesn’t cause me much of any headache so I’m apprehensive to change anything there.

The second one was just purchased last year and I am not ready to sell, refinance, or add equity since it’s a cheaper older condo. I purchased this in an attempt to pick up a property that was intentionally purchased as a rental, low price, and a condo to minimize repair work to inside the unit. It does okay but has traditional financing at a pretty high rate. Not much room to do anything with it right now. It’s been a really good learning experience if anything.

As I see it these are my options:

• -Leave the first two properties alone, continue saving, and purchase once I have enough saved up
• -Refinance out of the first property back to a 30 year mortgage with considerations on maintaining a positive cash flow and use that money as part of the down payment
• -Sell the first property outright and do a 1031 exchange.
  • Pros: Get out of a new property before needed repairs, get rid of a property that doesn’t perform that great by rental standards
  • Cons: Lose low financing, lose good tenants

Are there other options I'm not considering?  Also thoughts about timing the real estate market would be appreciated since I keep hearing it's supposed to drop.