Turning $55k into $1M+ [CONTINUED using BRRRR]

[Steven Baca]

Expert advice needed!!

I bought a townhouse in 2016 for $95k and have been renting it out since 2018 (creating ~$300+ monthly cash flow), as of today current mortgage due us $74k.  This townhouse has now appreciated to a value of ~$140k.

I bought a 3bd/1.5 bath home in 2019 for $113k, rehabbed it for 3 years and sold it for cash ($165,5k) and walked away with ~$55k in cash which I closed 9/2/22.

I just started reading the BRRRR book two days ago and need some solid advice on the direction I should take as this could narrow my road to that $1M+ goal sooner...

Which option should I take?

Option 1: HELOC/ Cash Back refinance my townhome and pull out enough equity to add to my $55k in purchasing a 2nd property? With rates being as high as they are this is a worrisome option

-OR-

Option 2:  Pull out $19k from my 401k, add that to my $55k and pay off the townhouse note. Invest a small amount of capital into it by adding some make up and then refinance it in order to purchase my second investment property?

My current situation: I just moved my family of 3 into my folks home while making this next investment transition and would like to have my next property by end of year.  My tenant moves out of townhome on 11/11/22 which I plan to move my family into the townhome for a 6-8month stint until a 3rd property is purchased which would be out slow-2-3yr-primary-residence-rehab-project.

Any straight forward advice would be GREATLY APPRECIATED. Or if there is a 3rd option I'm missing please indulge me!

Thank you in advance BP colleagues!

[Patrick Rhodes]

Steven,

Great question and situation for discussion. I do have a few questions that may help in figuring out what is best for you as that is different then what is best for me or anyone else giving advise.

In your post you spoke about "Cashflow" and a "1Million" Goal. What is more important? From your answers to other comments on here I would believe that there is a fear of losing the cashflow. 

What do you feel that market is going to do in your area over the next 1,5,10 years?

How does scaling your debt make you feel? Are you okay with having all of your properties highly leveraged or does that stress you? Would you rather less properties paid for or with low balances?

Personally, I would do the HELOC and get into another property. If that next property has the means to cash out and pay off the HELOC with in 18mnths. If it is longer then that I would do a cash out refi on the first property and buy the next investment.

Hope this helps.