We are all familiar with our state’s meteoric increase in home appreciation. If you’ve got questions about what to do with your equity, we’ve got answers.
For any of you who’ve built up a portfolio of income properties, congratulations. Have you thought about what you want to do with your real estate wealth? Let’s look at 10 different choices you might want to consider:
1. Stay put. For most investors, long-term investment in real estate historically generates the majority of wealth in a portfolio.
2. Refinance and buy more real estate. By using historically low interest rates to create leverage for additional investments, you can build the portfolio allocation to your desired size.
3. Sell and move up. Ask yourself, “Are you are living in the home of your dreams?” If you still envision upgrading in the future, then transferring equity now and using today’s low interest rates could make that a reality.
4. Sell and buy a second home. Living in Colorado, you may have dreams of owning a mountain getaway. If that ski cabin, or condo, or place for a family gathering is appealing, it’s an option you can explore with some of your investment equity.
5. Sell and help your child/grandchild with a home down payment. If you are an investor and considering providing down payment assistance to a loved one, you understand the fundamental benefit and wealth-creation opportunity that investing in real estate provides. In a day when affordability challenges are amplified by lean supply and demand of housing, a down payment gift can be transformed into financial independence for your children or grandchildren.
6. Sell investment property and pay for your child’s/grandchild’s education. Student loans can be a challenge for your children when they’re ready to enter the workforce. Reducing or removing this debt can provide a faster start toward wealth creation and financial independence.
7. Sell and trade. Thinking about a different type of property investment? You can make the leap from a single-family rental to multi-family or commercial.
8. Sell, and start collecting “mail box money.” Carry the financing for your buyers and you become a lender earning interest.
9. Sell and try different investments. Maybe you have aspirations of running your own business. Your real estate equity may be the means to make this a reality. You can choose to utilize your investment real estate returns on exploring these new frontiers and opportunities. You only live once!
10. Sell and increase your cash flow. You can reduce your portfolio and increase your cash flow. Check out the accompanying example to see what we mean.
Less is more
How can reducing your real estate portfolio increase your cash flow? Here’s how:
• You own 10 houses worth $350,000 each.
• You owe $150,000 on each, leaving $2 million in equity.
• Your current monthly cash flow is $600 on each, or $6,000 total per month
• If you sell five houses, you can pay off the other five.
• Now you own five houses free and clear, worth $1.75 million
• Without mortgage payments, your new monthly cash flow is $1,450 each, or $7,250 per month
Brandon Wells is president of The Group Inc. Real Estate, founded in Fort Collins in 1976 with six locations in Northern Colorado.