All Forum Posts by: Tyler Cruz

Hmm... it's been a while since I used BiggerPockets - I'm a little surprised nobody has replied yet. Has the site seen a decline in activity, or perhaps I'm posting in the wrong area?

Hello,

5 years ago I purchased my first income property (separate from personal residence). 1-2 years after purchasing it, my business crashed and I stopped earning income - I only make a miniscule amount right now, only able to save around $5,000 a year, and I don't see that changing.

I'm in the final stages of refinancing my mortgage right now, and it got me wondering if I should be trying to pay off my income property's mortgage, or look into utilizing the equity in it to purchase another one, whether that be through a HELOC, Cash-out refinance, or some other means.

I will provide my numbers below. Where I live, it's hard to get any real cashflow from a property - earnings come primarily from appreciation. There was a real boom right after I purchased my property (some years were as high as 30%), but then the government imposed a lot of very strict purchasing and lending rules (I live on Vancouver Island, and Vancouver had skyrocketing house values which trickled in over here) which grinded that growth to a halt. And now because of COVID-19, things have really slowed down (+0.1% appreciation over last month, +3% from a year ago, +15% from 3 years ago).

My property's cap rate is 3.28% (value: $430K, income after property management fees + maintenance: $19.9K, insurance, utilities, property taxes: $5.8K (NOI: $4.1K). Taking the property management fees out and raising total monthly rents by $150, it'd be 5.8%).

I currently owe $118K on the mortgage. 2.5% 5-year fixed rate is what I'm about to get in my refinancing.

I have $70K sitting around in my bank account, of which I'd only want to use maybe $30K of, as I need a comfortable buffer, to help with down payment, closing costs, paying down the morgage, etc.

And so, I'm wondering if I should focus on paying down existing mortgage, or possibly look into buying another income property (if it's even possible with my non-income). I purchased this one for $274K 5 years ago, and it's worth $430K now. But who knows what the market will do in the future - I don't think things will climb like they did before due to the government regulations, but who knows.

I just hate the idea of all that equity sitting around in the property and not doing anything with it.

I should mention that if purchasing a 2nd income property would only be slightly better on paper over paying off the existing mortgage, that I'd prefer to pay off the mortgage as it's less stress, and I have medical issues so I like to live as stress-free as possible.

Thank you guys - BiggerPockets was the main reason I purchased the first property.

There was (and still is perhaps?) a Nanaimo Real Estate Investors meetup group, which has been passed down to one organizer after another. I haven't been to any of those meetups yet though.

I own an investment property which is house with a suite that I purchased 4 years ago (wow, time flies). I was making a lot of money from online endeavors a couple of years before that, but have just barely been scraping by over the past few years, so do not have the capital or income to be able to purchase another income property these days, although that is very slowly changing and I'm able to start slowly saving again.

It kind of sucks because I have a lot of equity and capital tied up in that property, but can't leverage it to roll onto a larger property, since I wouldn't be given a mortgage at my recent income rates.

I think that, unless you're a slumlord, you can't really cashflow here - at least it's not worth the investment, and that the real gains come from appreciation and equity gain.

I also think that student housing could be a great opportunity - if I had the funds, I'd be really interested in purchasing a house with a lot of bedrooms in the university district and then renting it out to VIU students. A 5-bedroom fully occupied would be $3,250 a month for example.

Hello fellow Nanaimoite. Wow, you purchased that at 21? I think I was still living at home at 21, lol.

So you're planning on purchasing a second property through a HELOC then? Are you making enough salary from your day job to where a lender will let you get a 2nd property?

I purchased my first income property here in 2015, but stopped making any real income about 2-3 years ago, but would like to utilize the equity I have in my property, but since I don't make any/much income, it's not going to happen unfortunately.

Hello from Nanaimo.

I would personally choose B, opting to delay that dream house just a bit in exchange for growing your income property snowball faster.

That being said, for 1.5 million you can get an absolutely gorgeous house here... I think I read somewhere before that you already have a property here, so you should know that 1.5 million would probably get you one of the top 50 or so houses here.

Got it. That's exactly why I was thinking of leveraging that equity into another property, assuming the cashflow numbers can safely handle the refinanced mortgage. My idea was to refinance (cash out the equity) and buy another property in cash and then use that added rental income (say $1,000 a month) in addition to my existing $1,900/month to pay off the refinanced mortgage.

I am obviously new to this though so am not sure if my thinking is right here.

Couldn't you argue the same thing with cash flow though? Maybe vacancy rates skyrocket and kills your cash flow. You're risking everything on cash flow, no?

I guess I'll have to research what you mean by opportunity value as I have no idea what you're talking about there.

Did your message get cut off? Otherwise I don't understand the numbers breakdown...

When I say breaking even, this is after mortgage costs, taxes, repair costs, contigency fund, etc. I am not left with any savings towards another property. 

As mentioned though, I feel that here you can gain a lot more through appreciation than you can through cash flow... I don't understand how less equity means greater cash flow. Shouldn't it be the opposite as the mortgage is less with a larger down payment?