Success update and advice sought

[William Collins]

Here is a progress update from a small-time investor in Connecticut who is trying to achieve financial freedom. The road has been acquisitions for the last seven years. This year is a stabilization and reflect year.

The questions that I am trying to work through are what to do with locked equity and where to go next. The support system I have set up is Connecticut based in the Hartford County area. I have built a portfolio that is reflected below. Some major wins for the year: I started with a rent role due to turnover of about 52,000 per month. I will exit the year. With a Rent roll total of about 74,000 per month. PITI Is approximately 43,000 per month. Needless to say, the year began stressfully but has turned the corner. Accounting for approximately $10,000 of repairs, maintenance, and capital expenses per month, this still leaves a passive stream of about 20,000 to split between two partners. The properties also have appreciated very well, and we currently sit at about 55%. debt to equity ratio. Most of the debt is on fixed 30-year notes.

Personally, I have a stable long term W2 job which can cover my family's expenses. I also have 401k/ IRA which put me on coast FI.

So here is the question for you:

Would you pull out 500,000 From the equity on the portfolio to do the following:

Invest in Short term rental properties, in long term residential rental properties that are more aligned to appreciation.

It would decrease cash flow by $2000 in the short term.

Manchester CT – 3duplexes, 1 quadruplex and 1 5 plex

Canton CT – 1 triplex, 1 five plex and 1 six-plex

Southington CT- 2 duplexes

Bristol CT- 1 duplex, 2 quadruplex, 1 six-plex

Berlin CT- 1 duplex, 1triplex

Total unit count: 54

Rent Role: $73 780 / month.

[Drago Stanimirovic]

Hi William,

It sounds like you've built an impressive portfolio over the last seven years, and congratulations on the substantial increase in your rent roll. You’re in a strong position with stable long-term financing, solid cash flow, and a reasonable debt-to-equity ratio. The fact that you’re now considering the next steps with equity is a sign that you're ready to level up, but it's also crucial to be strategic about it.

In terms of pulling out $500,000 of equity for new investments, there are a couple of key factors to weigh. First, you've mentioned that pulling out this equity would decrease your cash flow by around $2,000 per month. Since your current cash flow is $20,000 (split between two partners), that’s a 10% reduction. While this is manageable, especially since you have a stable W2 job that covers personal expenses, it's important to evaluate how much more stress it may add in the short term. You’ve already experienced a stressful beginning to the year with turnover and vacancies, so ensuring that any new investments won’t put you back in that situation is crucial.

Another thing to consider is your overall strategy. Short-term rentals can offer higher returns but often come with more management complexities such as higher turnover and seasonality. On the other hand, residential rentals aligned with appreciation tend to be more stable and are a solid bet if you’re looking at long-term wealth building. Since your current portfolio is generating healthy cash flow, you might benefit from diversifying into an asset that provides a mix of stability and growth. A few high-appreciation properties in the right markets could increase your net worth significantly over the next 5–10 years, especially since your cash flow situation allows you to absorb some temporary fluctuations.

With a debt-to-equity ratio of around 55%, you’ve built a good cushion of equity. Tapping into $500,000 (roughly 5-10% of the portfolio's total value) keeps you well below the 80% loan-to-value ratio threshold that would be considered high-risk. So, leveraging equity makes sense if you're looking to expand without over-leveraging yourself. However, it’s important to maintain enough liquidity for unexpected repairs, vacancies, or other expenses across your existing portfolio.

If I were in your shoes, I would likely lean towards reinvesting in a way that balances both cash flow and appreciation. Short-term rentals could offer strong returns, but consider how much management effort that might take, especially with multiple properties already under your belt. Investing in markets or asset types with stronger appreciation potential but with less day-to-day management may be a smarter long-term move, particularly if your goal is financial freedom and less active involvement.

In summary, pulling out $500,000 from equity could be a smart play, especially if you're focused on long-term appreciation. However, you’ll need to ensure that the reduction in cash flow doesn’t significantly impact your financial stability or increase stress levels. Consider carefully what types of properties will help you achieve your long-term goals while maintaining the financial freedom you’re working towards.

Let me know if you'd like to go deeper into the financial modeling or need any assistance with financing options to pull out the equity. I’m happy to help.

Best regards,

Drago