Property value up 50% in 3 years, what would you do?

[Matt Bowers]

Hi all - I'm curious what everyone would do in my position. Happy to hear all opinions, and thanks in advance. 

My wife and I are hoping to build a portfolio for long term buy and hold. We have two properties right now. One, we purchased in 2013 for $500k with $100k as down payment. The property is worth about $800-900k now. Lucky. Mortgage is 30 yrs at 3.25%, full payment incl ins and taxes is about $2300/mo. It rents for $5700/mo. 

Now we've got about $450k equity in it... what would you guys do? I'm tempted to hold on to it, but I know other people would 1031 into something bigger?

Sorry if this is in the wrong forum... it was a tough choice.

[Chris Mason]

@Matt Bowers,

One thing about a 1031 in your situation... there's a good chance that whatever you buy will ALSO have appreciated by some crazy amount. Would that property itself be as cash flow positive if you had to pay $900k for it today? Ehhhh probably not so much.

And then there's of course the standard biggerpockets.com advice to always be mortgaged to the hilt and ever more in debt, which would mean a cash out refinance to pull ~$200k out and buying something else. And of course you're going to start paying interest on that $200k right now, which will pressure you to hurry and buy something even if it's not a particularly good deal. Also, good bye 3.25%. I mostly agree with @Steve R., but would strongly advocate champagne over wine.

However if you want to hedge against some amazing opportunity crossing your desk that you need to be ready for, go open a HELOC for $200k or so (really whatever you can get) with a balance of $0.00. There will probably be a $75/yr maintenance fee - whatever.

Then go make a spam account and get added to some mailing lists of local hard money lenders, investor friendly agents, investor friendly escrow officers, and wholesaler types. And continue to do whatever active looking you are already doing. If something you can't pass up comes along, you've got $200k liquid with the click of a mouse and are ready to jump on it right damn now, and you weren't paying interest on that $200k in the interim for no reason (ok you could take that $75/yr and divide it by $200k and claim you were paying 0.0375%... whatever).

If you think that 'something' that might come up is going to need more than $200k, get a local lender to run numbers and qualify you hitting your DTI with what the payments would be if you maxed out that $200k HELOC. Find someone that will treat you like an intelligent adult, who doesn't put expiration dates on preapproval letters so that, again, you aren't feeling time-pressured to move before you're ready.