Hi Money Minder,
I’m in the process of snagging two rental properties. Let me break it down for you:
Deal 1:
I’m getting a 2-unit property valued at 355k for $270k because the owner is going through a divorce. It’s a sweet off-market deal! The down-payment + closing costs come to $80k. Both units are rented out, bringing in 1k a month. There’s also a studio in the back that needs sprucing up, which will bring in an extra 800 per month once it’s done.
Deal 2:
This one’s a 4-unit property worth 250k that I’m getting for $230k. Two units are already rented out with tenants who want to stick around. Closing costs are around 63k. When fully leased, it’ll cash flow 2 to 2.5k a month.
Both properties don’t need much work, but I might invest 5k to paint the interiors and spruce up the curb appeal.
Here are my finances:
- 90k liquid cash
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126k in the stock market
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86k in an IRA
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8.5k in crypto
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2.7k in silver
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My mortgage payment is 2.6k on a house with about 250k equity
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I also own a double next door to deal #1 that brings in 1.1k per month and has about 150k in equity
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I own a commercial building outright that cash flows 1k a month and is valued at 120k
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I own 4 cars worth 80k with no payments
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I’m in my low to mid-30s, single, and make about 100k per year from my business. I currently have a net worth of 1M with 700k tied up in assets and equity
I plan on using 80k of my liquid money for the down payment on the first property. My stocks have been doing well, with one stock up 100% that I have a lot of faith in. It’s also up 7x from its lows two years ago.
For financing the second deal, I’m torn between two options:
Option A:
Sell off 52k from my stock portfolio + all my crypto and silver to make the 63k down payment. I’d have about 75k left in my personal stock portfolio. I’ve had a rough ride with my stocks, seeing them go from 190k down to 80k. But I’m currently up 53% or 71k all-time.
Option B:
Take out a heloc on my primary residence for 65k at a rate of 3.99% for the first year. I’d try to use all my rental income + any money I would’ve invested in stocks until 2025 to pay off the heloc in the first year.
What do you think is the smartest or safest option? Or do you have another suggestion?
Thanks so much for your help!
Response from THE MONEY MINDER:
Hello There,
Congratulations on the exciting venture of acquiring two rental properties! It sounds like you have carefully analyzed the potential of each deal and have a solid financial foundation to support these investments. Given your current financial situation and the details you’ve provided, let’s take a closer look at the best approach for financing Deal #2.
Option A involves selling off a portion of your stock portfolio, as well as liquidating your crypto and silver investments to finance the down payment for Deal #2. While this option would provide you with additional liquidity to facilitate the acquisition, it’s important to consider the potential impact of capital gains taxes and the performance of your current stock holdings.
On the other hand, Option B suggests taking out a HELOC on your primary residence to fund the down payment for Deal #2. This option allows you to leverage the equity in your home at a relatively low-interest rate, with the intention of using rental income and future investments to pay off the HELOC quickly.
In choosing between these two options, the best approach would depend on your risk tolerance, investment goals, and overall financial strategy. Selling off a portion of your stock portfolio could expose you to potential capital gains taxes and volatility in the market. Meanwhile, using a HELOC may provide you with greater flexibility in managing your cash flow, but it also carries the risk of leveraging additional debt against your primary residence.
Considering your long-term conviction in your stock holdings and the need for additional financing for Deal #2, a balanced approach might be to explore a combination of both options. You could consider selling off a portion of your stock portfolio to cover a portion of the down payment, while using a HELOC to supplement the remaining amount needed. This approach could help mitigate risks while ensuring you have the necessary funds to capitalize on both investment opportunities.
Ultimately, it’s essential to weigh the pros and cons of each option in light of your financial goals and risk tolerance. I recommend consulting with a financial advisor to evaluate the best course of action based on your individual circumstances. By carefully assessing your options and staying informed, you can make a well-informed decision that aligns with your overall investment strategy.
Best of luck with your acquisitions, and may they yield fruitful returns in the future.
THE MONEY MINDER
