Author Topic: Tapping Into Equity On My Rentals - Pros and Cons  (Read 524 times)

froggirl

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Tapping Into Equity On My Rentals - Pros and Cons
« on: January 04, 2021, 01:10:08 PM »
I own 5 properties outright and have a 6th property with a loan balance of $28,000. I've talked to a lender and am considering doing a cash-out on at least 2 of my properties, so that I can purchase more rentals. I could pull out 75% of the appraised value and finance at an interest rate of 3.3% for 15 years. If I did this with 4 of my properties, I could purchase 3 more for cash. I'm a little nervous about doing this, but my CPA said it sounds like a sound plan. I have my real estate broker's license, but  the market is so tight  in the Dallas-Fort Worth area, that I worry about finding new rentals, without paying too much. Also, 100% of my tenants have been able to pay on time, but I worry about the effects that Covid-19 could have on  tenants in the future. I currently am  semi-retired and can live off of just my rental income. My real estate commissions are just a bonus. I don't want to look back in a few years and wish that I had taken advantage of these low interest rates, but I don't want to overleverage myself either. Does anyone have advice for me?

PMJL34

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Re: Tapping Into Equity On My Rentals - Pros and Cons
« Reply #1 on: January 04, 2021, 05:22:44 PM »
Do nothing. That's an easy decision for me. You already won the game, you do not need to take on unnecessary risk.

Papa bear

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Tapping Into Equity On My Rentals - Pros and Cons
« Reply #2 on: January 04, 2021, 07:06:44 PM »
Im in the process of pulling out cash from rentals.  Will either invest it in etfs or back into more real estate if anything comes close to looking good. 


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waltworks

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Re: Tapping Into Equity On My Rentals - Pros and Cons
« Reply #3 on: January 04, 2021, 08:49:24 PM »
Why do you want to invest more, if you're already FI/able to live on the rental income?

Let it ride, unless you have a specific opportunity you can't fund any other way, and you just love RE wheeling and dealing.

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Jeo

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Re: Tapping Into Equity On My Rentals - Pros and Cons
« Reply #4 on: January 05, 2021, 10:54:42 AM »
I'm in a somewhat similar situation (and may post about it later). Having significant equity "locked in the walls" that could be put to use so cheaply is tempting, but your best move depends entirely on your goals, timeline and appetite for risk.

What are you optimizing for? If you're optimizing for absolute safety, you could do nothing and work towards paying off that last loan. If you're optimizing for cash flow, you could cash-out as much as possible (likely with 30 year loans) and then buy as many additional profitable properties as you can find and afford. Based on your post, I'm assuming you're somewhere in between -- trying to minimize leverage while still building your RE portfolio. A couple ideas for managing market risk:

1. Cash out 1-2 properties instead of 4 and use the money for down payments on future properties (rather than all-cash offers). That way you won't have four loan payments and a bunch of cash sitting idle while you're searching for deals. It doesn't seem like rates are going to rise very rapidly in the near term, so you can still take advantage of close to all-time lows.

2. Run your purchase analyses with higher than usual vacancy rates and lower rents if you're nervous about the Covid economic hangover.

srad

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Re: Tapping Into Equity On My Rentals - Pros and Cons
« Reply #5 on: January 05, 2021, 12:02:35 PM »
FOMO is not a reason to buy properties.  I buy em for cash flow or a value add play, but not because of fomo. 

look, you have 5 paid off and are looking at cashing out a few to buy more with cash.  You won't be over leveraged at all.  you'd be less than 50% portfolio LTV.  What you do run is the risk of several tenants not paying due to covid.  But we've all been running that risk and to date, the majority of tenants have.    If covid is your main concern but you want to expand your portfolio.  Then maybe cash out 2 or 3 of them now and just hold onto that money till Covid has passed or there's a deal you cant pass up.  Also with Interest rates as low as they are right now, I'd go the 30 year route to keep your payments that much lower.