Tap into your Rental House Equity!
23.02.2021 Blog, General Investing, Investment Properties, Rental Property, Single Family, US Real Estate
That rental property you bought with us over 6.5 years ago may buy you additional rentals!
Have you checked your rental house’s value recently?
My guess is it went up significantly since you purchased it!
When was the last time you calculated how much you have gained from value increase + mortgage principal reduction + cash flow (- additional expenses)?
The main challenge we are seeing with properties that were purchased some 7+ years ago is that the rent did not keep up with the value increase.
Meaning – it is possible the value has increased 30% or even 50% since you purchased it (in some cases even doubled) but the rent only went up 10-20%, maybe a bit more.
The big question is how do you tap into that equity? or should you tap into your equity?
Here’s the challenge – if you refinance and pull cash out, you may reduce the cash flow and hurt the property’s stability. Or it is possible you will only be able to pull out a small amount of cash which won’t be enough to buy another property.
So what are your options?
Option I – do nothing and keep enjoying the cash flow.
Option II – refinance and don’t take cash out or take very little making sure you keep a minimal required cash flow – MRC.
At a minimum, I suggest taking advantage of the current super-low mortgage rates and better your cash flow by getting a new mortgage with a lower rate – in case you have not done so already.
Option III – sell or better yet 1031 exchange and utilize your gained equity to buy TWO or more properties instead of the one you currently own.
In short, 1031 exchange is a legal tax defer (not tax elimination) mechanism that allows you to defer tax to a future time. 1031 exchange is a bit more complex. You should consult with the right professional about it.
Here are a few challenges we think you should be aware of and we can help you with:
- Refinance duration – these days it takes approx. 40-50 days to complete a refinance – lenders are swamped.
- Selling while occupied – if you want to sell and your house is tenant-occupied that may be difficult. If you call us, we may be able to assist in such a situation.
- Buying these days – inventory levels in most US metros are low and demand for housing is high. This works in your favor if you are selling but will make it harder if you are buying, especially if you are doing a 1031 exchange. In case you are doing a 1031 exchange, we may be able to assist you better in meeting your 1031 exchange requirements. If you call us, we may be able to assist in such a situation.
Confused? Not sure what to do? Call me and let’s explore your options.