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How to take out equity in fully paid for rental homes

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  • How to take out equity in fully paid for rental homes

    In 2009 I purchased two rental homes in California for about $275K each. Today, estimated sales would be $650K each. They have no mortgage. Existing renters are fantastic and never late. Combined rental income is $57,000/yr. I'm retired and manage these two homes myself, and with great renters not a huge job.

    My question is what to do with all of this equity.?

    Approach #1: I could sell both and buy more rentals using only a 20% down would net about $5.625M in new properties (assuming about 10% CC). However, the real estate markets in the US seem very high. Is now the time to invest in new rental property? With this approach I'd probably need a management rental firm as I don't want to be doing that myself in retirement. Home prices seem very high for this approach.

    Approach #2: Refi the homes (sub optimal rates for non owner occupied) and then the issue is what to do with these funds that will produce a better ROI than I'm getting now which I calculate to be 5700/550000 = about 10%. Stock market comes to mind - but same issue as approach #1 - stock market is sky high right now and ready for a correction.

    Approach #3: Do nothing and enjoy the easy 10% return.

    Thoughts?

  • #2

    If you sell, factor in all the costs of selling and buying again. The current yield is around 4% , is it possible to add value?
    We are slowly getting out of the QE so rates will be rising and of course inflationary pressure is imminent.

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