Sell & Buy OR Refi & Buy
Have two rental properties and want to use existing equity to buy additional ones.
Prop1: 50% equity
Prop2: 100% equity
Overall: 68% equity
So I think I should much more leveraged. Seems that I'd be better of at just the opposite ~ 32% equity and rest financed.
Any thoughts on a target % equity.
Also I'm looking to maximize cash flow, so that this can be sustained. Thus, I am looking at interest only or neg. amort loans. Based on this it looks like financing is limited to 60-75% of appraised value.
Any suggestions on whether to sell & buy, as opposed to refi & buy, in order to expand property holdings.
Suggestions given will be just other people's opinion on what they would do (some I'm sure with no REI experience) in your position. These opinions are given too with only the minimum amount of info that you have given within your posts. Remember that and take them for what they're worth.
We also don't know your short or long term goals and general business plans. My question back to you, would be what is your opinion of what you should do based on your business goals? "I think I should be more leveraged" does not should like a plan. It sounds more like something you've read out of a book. The fact remains, leveraging or not is greatly dependent on your business plans and goals.
On to thoughts on equity. I'd never ever borrow more than 75-80% of FMV. That's true FMV, not some overblown appraisal. Make sure that you know the difference. Also, you need to have a minimum cashflow figure in mind, whether it is a percentage of the payment or a dollar amount, for example $200/month, and stick to that figure. Using $200/month, you'd only borrow up to the point where your payment (taxes/insurance/etc) is $200 BELOW the rental income, whether that be 80% or 50% LTV.
I would lower my loan amounts to 70-75% on an interest only program as you are not returning any equity into the property, and relying on appreciation is foolhardy at best. I would never, repeat NEVER use a negative amort. loan to get cashflow. That is just begging for serious problems down the road.
As far as sell/buy, or refi/buy, that again must be a decision based on your business goals. However, only you're downgrading your rentals, are you are getting better deals, it is rarely going to expand your property holdings by selling off properties.
Roger
I like to hold mine around 20% on the original to avoid PMI. It's not advantageous for me to pay them off as I have a full time job with income. The interest off the loans eliminates my federal income tax liability. So it makes sense for me to continue to pull out the equity.
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