Getting equity out of rental property

[grossklw]

You haven’t called enough banks. I used to do this quite often when I was getting started to continue to grow. I own around 90 rental units in the Midwest, I don’t have any 2nd position loans any longer other than lines of credit that I essentially use as cash when purchasing and immediately refinance out after closing.

It depends on how long it would take you to pay it back. Could you do a line of credit and be comfortable paying in the 8-10% range until you can get the balance to zero? That’s your question.

You’re taking on more debt to build wealth, not buy your dream home in Costa Rica. I wouldn’t hesitate to pull the trigger if it were me. If no local lenders will look at it get with a mortgage broker that can shop your portfolio better.

The owner financing comment above is the first way I’d look at it, if it’s not possible I wouldn’t hesitate to take a line of credit out if you have the finances to pay it off in the next few years, I personally don’t see rates increasing considerably in the next 2-3 years, but that’s just my opinion.

 

[Yellowknife]

Will your properties cash flow when your interest rate doubles on one?

Not particularly important. To make it pencil, the engineering firm cash flow only has to cover the marginal difference between what the rental makes now and what it makes going forward, even if negative. If the company he's buying into is solid, he should be able to do that with room to spare.

There are other potential aspects as well. A lot of engineering businesses are set up with flow-through tax structures, with comes substantial benefits.

 

[HuntHarder]

I love topics like this. I have a lot to learn on this front. I am in the guy that has no debt and the thought of debt makes me nervous. Having said that, I am starting to realize that to get true wealth, it is much easier to use leverage and debt in your favor.

I make good money and have modest investments, but scared money doesn't make big money. Tagging along trying to learn.

 

[sasquatch]

I love topics like this. I have a lot to learn on this front. I am in the guy that has no debt and the thought of debt makes me nervous. Having said that, I am starting to realize that to get true wealth, it is much easier to use leverage and debt in your favor.

I make good money and have modest investments, but scared money doesn't make big money. Tagging along trying to learn.

Debt can’t make you very rich if all cylinders hit right, but it can also make the rest of your life hell. It’s a two edged sword.

No debt, slow wealth build is more guaranteed to make you a decent life. Maybe not super rich, but also not hurting for much.

Theres alot of value in the low stress of no debt to owe.


Sent from my iPhone using Tapatalk Pro

 

[HuntHarder]

Debt can’t make you very rich if all cylinders hit right, but it can also make the rest of your life hell. It’s a two edged sword.

No debt, slow wealth build is more guaranteed to make you a decent life. Maybe not super rich, but also not hurting for much.

Theres alot of value in the low stress of no debt to owe.


Sent from my iPhone using Tapatalk Pro

No doubt, I have chosen that no stress slow wealth path. I live a good life, but often wonder about the debt way to get wealthy. My sister is in real estate and does 7x what I do. She's all about using smart debt

 

[Pharmseller]

Onlyfans.

Post feet pics.




P

 

[180ls1]

Some good ideas in here.

Don't forger hard money lenders, AKA creative finance.

 

[Wrench]

Military? Navy federal has the deal on mortgages....uber low down and no pmi and cheap to buy better rates when they occur.

If your business venture seems lucrative, sell one of the units, flow your business and be much closer to debt free. You can always build another as long as you can afford it.....and if you can't, you just saved yourself some stress.

 

[Silver Wings]

I've read a couple of Ramseys books, and I think he gives good advice for the most part. But personally I'd borrow as much as they'd give me for income producing property.
I hope it works out for your brother in law, from all my research if the company is on even a small upward trajectory the returns can be very good.

I don’t know old you are or what you know about what happened in 2008 and for a few years after, but it was made crystal clear that many people didn’t understand the downside to using leverage.
I know you’re not trying to pull equity or take on a separate loan for a boat or motorhome or a swimming pool and that’s great. The risk is that your income producing properties become income draining properties when people stop paying…like they did in ‘08.
I watched my cousin loose 3 or 4 duplexes just like that. Leveraged to the gills and people just quit paying or moved out.
I would not give up the rates you have now or the equity to fund this new investment. I’m not against a new loan to fund it, but what you have already is not worth risking…to me, anyway.
Hope you come up with a solution that works well for you at a minimum of risk.

 

[schmalzy]

I don’t know old you are or what you know about what happened in 2008 and for a few years after, but it was made crystal clear that many people didn’t understand the downside to using leverage.
I know you’re not trying to pull equity or take on a separate loan for a boat or motorhome or a swimming pool and that’s great. The risk is that your income producing properties become income draining properties when people stop paying…like they did in ‘08.
I watched my cousin loose 3 or 4 duplexes just like that. Leveraged to the gills and people just quit paying or moved out.
I would not give up the rates you have now or the equity to fund this new investment. I’m not against a new loan to fund it, but what you have already is not worth risking…to me, anyway.
Hope you come up with a solution that works well for you at a minimum of risk.

If I’m reading this right, you’re advocating staying in rentals at a low interest rate rather than investing as a partner in an engineering firm as a safer bet?

If so, wouldn’t this contradict the risk of the 08 situation you referenced of non payment/abandonment? Interest rate seems somewhat inconsequential in this scenario.

Asking respectfully and without any sarcasm or snide.


Sent from my iPhone using Tapatalk

 

[z987k]

If you're going to have to pay capitol gains on a sale, make sure you look at what that costs vs a 8-10% loan. There's no taxes on loans and it's usually a deduction.

I'm actually in a similar situation myself. Multiple multi-family's and found another piece of real estate just came available that I want that I don't have the cash for the amount of down payment I'd want to do on it. 2nd mortgage, HELOC or just sell it and do a 1031. The 2.75% rate makes me never want to sell it and it's cash flowing well.

 

[philos]

Most lenders that do conventional lending and or most commercial banks will not lend as open on investment/rental properties. It is very difficult to get a legitimate HELOC on an investment property – it is a much higher risk grade overall for lending institutions. There are options out there, but you have to be very careful because some of those are hard money lenders or offer terms that are not favorable unless you are desperate.

You may be better served by going with the SBA type loan as opposed to a residential mortgage. Every loan out there is gauged by risk and investment properties are the highest risk by far to lending institutions

 

[Silver Wings]

If I’m reading this right, you’re advocating staying in rentals at a low interest rate rather than investing as a partner in an engineering firm as a safer bet?

If so, wouldn’t this contradict the risk of the 08 situation you referenced of non payment/abandonment? Interest rate seems somewhat inconsequential in this scenario.

Asking respectfully and without any sarcasm or snide.


Sent from my iPhone using Tapatalk

I’m saying I’d do everything in my power to keep the low rates and equity that makes the rentals positive. Having that margin when/if the SHTF keeps you in better shape. Plus they are such an awesome long term investment. It’s not out of the question that we never see those rates again in our lifetime.
I’m all for the engineering firm buy in, even if you have to borrow to do it…assuming you’ve done the math and are comfortable with the return, which I’m sure you have. I think I’d rather find a way to finance the buy in separate from the real estate, even if it means a higher rate. Then make sacrifices to pay it off as quickly as possible. You will have mitigated 99% of your risk and will be on your way to being really comfortable.
Whatever you do I wish you well.

 

[schmalzy]

I’m saying I’d do everything in my power to keep the low rates and equity that makes the rentals positive. Having that margin when/if the SHTF keeps you in better shape. Plus they are such an awesome long term investment. It’s not out of the question that we never see those rates again in our lifetime.
I’m all for the engineering firm buy in, even if you have to borrow to do it…assuming you’ve done the math and are comfortable with the return, which I’m sure you have. I think I’d rather find a way to finance the buy in separate from the real estate, even if it means a higher rate. Then make sacrifices to pay it off as quickly as possible. You will have mitigated 99% of your risk and will be on your way to being really comfortable.
Whatever you do I wish you well.

Makes great sense. Thanks for clarifying.


Sent from my iPhone using Tapatalk

 

[MattB]

I’d look at selling one rental and financing the difference with a hard money lender if I really thought the engineering firm buy in was a superior investment to my rental properties. While the low interest rates you have are likely never to be seen again and have the ability to help investors create a lot of wealth, honestly how much money are you really talking about on one rental? $100k-200K? And what is the prospective upside on the interest in the firm? My guess is far more than that one rental (or the differential between a 3% loan and an 8% loan).

 

[DAOutfitters208]

It’s not uncommon to buy in over time. You could create an agreement to make payments against the buy in amount. Why do they want the cash upfront?

 

[shader112]

You haven’t called enough banks. I used to do this quite often when I was getting started to continue to grow. I own around 90 rental units in the Midwest, I don’t have any 2nd position loans any longer other than lines of credit that I essentially use as cash when purchasing and immediately refinance out after closing.

It depends on how long it would take you to pay it back. Could you do a line of credit and be comfortable paying in the 8-10% range until you can get the balance to zero? That’s your question.

You’re taking on more debt to build wealth, not buy your dream home in Costa Rica. I wouldn’t hesitate to pull the trigger if it were me. If no local lenders will look at it get with a mortgage broker that can shop your portfolio better.

The owner financing comment above is the first way I’d look at it, if it’s not possible I wouldn’t hesitate to take a line of credit out if you have the finances to pay it off in the next few years, I personally don’t see rates increasing considerably in the next 2-3 years, but that’s just my opinion.

My issue is the Helocs are second position. Out of the maybe 25 banks and credit unions ive talked to, only one said they can do a second on an investment duplex. I've still got a list of places to call, so I'm not done yet.

And I am not too concerned with what interest rate I get, because I don't plan on having it long enough for it to matter. Maybe 2 year's.

Owner financing is unfortunately not an option in this case

 

[shader112]

Military? Navy federal has the deal on mortgages....uber low down and no pmi and cheap to buy better rates when they occur.

If your business venture seems lucrative, sell one of the units, flow your business and be much closer to debt free. You can always build another as long as you can afford it.....and if you can't, you just saved yourself some stress.

Not military unfortunately.

It's definitely worth selling a unit, I just don't want to until it's my last option. One way or another I'll make it work. Worst case I end up paying Uncle Sam money they don't deserve

 

[shader112]

I don’t know old you are or what you know about what happened in 2008 and for a few years after, but it was made crystal clear that many people didn’t understand the downside to using leverage.
I know you’re not trying to pull equity or take on a separate loan for a boat or motorhome or a swimming pool and that’s great. The risk is that your income producing properties become income draining properties when people stop paying…like they did in ‘08.
I watched my cousin loose 3 or 4 duplexes just like that. Leveraged to the gills and people just quit paying or moved out.
I would not give up the rates you have now or the equity to fund this new investment. I’m not against a new loan to fund it, but what you have already is not worth risking…to me, anyway.
Hope you come up with a solution that works well for you at a minimum of risk.

That sucks about your cousin, that would be a tough loss.

I think I'm pretty covered, since I essentially live rent free I could cover all my payments each month even if all my tenants stopped paying. I've got money in the kitty for 6 months if I lost my job and all my tenants quit paying. Some of that is getting used up in this deal, so I'll have to be lean for awhile to build it back up. But I think it would take a bunch of bad luck and poor decisions to go belly up on these properties. (Knock on wood)

 

[gobblinglawyer]

Real estate lawyer here. I have no idea of the location or condition of the properties but you could sell the one you live in and then move into one of the others. That would avoid any capital gains and keep the current interest rate. However there may be a disparity in conditions of the properties and locations that would make that prohibitive. Just thinking out loud for you.