Splitting property to increase equity and reduce leverage??

[Timothy Church]

So a few years back I purchased a set of properties in Galveston I lovingly refer to as the cottages. They are 2 identical 2 bedroom 1 bath properties side by side and within a block of the Seawall/Gulf. These were originally my first entry into the land of AirBnB and everything that it entails. I have found that I truly enjoy owning and running AirBnBs and have begun shifting my portfolio over to a mix of commercial and STR.

When I originally purchased them, I paid $310,000 with 20% down using OPM (Other People's Money). This resulted in a commercial terms loan originally for $245,600 at 5.5% 20-year term, an $80k private money loan at 10% interest only for 5 years, and no cash out of my pocket (but 105% leverage....). Now the past few years the properties have performed very well resulting in a return varying between 20%-25% CoC (10% went to the investor & 10%-15% stayed in the account to build up over time and create a reserve).

Now that I have acquired a few properties and with the market feeling at its cap, I have shifted over to working on reducing my leverage and starting to pay down debts. One of the main reason I did OPM deals was it gave me a stable debt reduction investment at 10% even if things started going south. So here are my thoughts:

The reason I got these properties at the price I did is that they were being sold together. Due to their lot size being below the updated minimum for lots in Galveston, they were considered a duplex even though they are completely separated with their own addresses, utilities, street frontage, and driveways. These properties individually would be worth in the neighborhood of $180k-$200k due to increases in our market. I have a relationship with the city due to previous projects and have already begun discussions on getting a variance to allow for a smaller lot requirement. This is actually something fairly common in Galveston as they built houses rather close together back in the day to squeeze people in. Assuming the split goes smoothly and each property is worth $180k, here is my breakdown:

Cottage 1

Value: $180k

Loan: $144k (80% LTV)

Equity: $36k

Cottage 2

Value: $180k

Loan: $86k (48% LTV) (Current payoff is approx $230k)

Equity: $94k

Private money loan: $80k

Now the plan would be to take out a LOC on Cottage 2 for the available equity ($58k @ 80% LTV) and use it as well as funds from the investment properties earnings to eliminate the high-interest private money loan. All profits from the property as well as a chunk of profits from the other properties would then, in turn, be dumped into the LOC to rapidly pay it down. I'd then begin the debt snowball approach towards eliminating debt on these properties before working on paydown on the others.

Now I know I'm going to hear about being over-leveraged and I completely understand that. I took a risk in building my portfolio this way and have had to work hard in order to maintain and grow it. It was easy to take this risk being in my 20s but now that we have our first kid on the way and priorities have shifted. I'd like to work on deleveraging and stabilizing now. 

I would love to hear your thoughts on this strategy as well as any alternatives you can suggest. I thought splitting them would not only increase my equity but give me a lower term amount to work on eliminating. I look forward to your suggestions!!