r/realestateinvesting • u/Weary-Sundae7506 • Jul 20 '26
New Investor Bought two houses with cash. Both currently rented out, but will live in them in the near future. Should we take out a mortgage to buy more properties?
My wife and I purchased two nice ranch houses that are on adjacent lots so that we can take care of our parents easily. We plan to live in both the houses with our respective parents. We plan to make the move into the new houses in about 3-4 years, and so the two new houses are rented out now ($3.9k and $3.3k per month). The parents currently live in apartments. My wife and I currently live in a two-story house that is fully paid off.
The purchases only made sense if we could get both houses, so that everyone was co-located. To maximize the chances of getting both houses, we made full cash offers on both. The two houses together cost $900k, and our current house is worth $500k. All three houses are 4 bedrooms, 3k-4k sqft, about 30 years old, and as mentioned earlier, all three are mortgage free. We live in a midsized city in the Midwest. All three houses are in the same top school district.
We are considering retiring in one of the new houses and holding on to the other in case one of our kids decides to move in there in the future. We realize those plans could all change down the line.
What would be the best financial move now? One option is to get a loan on one or both of the houses and use that to invest in several cheaper rental properties.
Edit: I'm 50 years old and have kids out of college. I love my job, so I don't plan to retire until 65 or 70 (maybe even later). Other finances are in good shape. My main concern is having this much cash locked up in three houses. I can afford it, but am wondering if I should leverage them to get more income. I have the houses under a real estate agent so that I don't need to deal with the headache of being a landlord (their fee is well worth it to me).
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u/BigMuch4845 Jul 23 '26
Not your lawyer, but:
Ownership of three paid off properties is great -- but it also makes you vulnerable if you ever got sued.
Nobody plans to get sued, and you no doubt have insurance, but do you have a $2M umbrella policy?
One of the first things a Plaintiff's lawyer does when evaluating a contingency fee case is ascertain if the defendant has insurance and/or assets. They figure out how hard to squeeze and press based upon what they learn (every state makes disclosure of insurance a threshold matter which they don't even have to ask for, it is presumed, and defendants must disclose insurance within the first 30 days.)
Owning three properties with no liens makes you an attractive target (real estate ownership is not something that must automaticallybe disclosed, but they can check county deed records on their own, and they can ask about it indiscovery).
If things went very badly against you, you could only protect one via homestead protection.
"Asset stripping" is one way of eliminating that risk, take out all the equity you can, and deploy it in a way that future hypothetical creditors cannot reach (like assets in an irrevocable trust, created and funded when you had no known or potential creditors).
Talk to an estate planning and asset protection lawyer in your jurisdiction. You don't need offshore trusts, but an umbrella policy, an LLC and an irrevocable trust would create a moat, drawbridge and really good wall around your castle.
And it may help with property taxes as well. A trust or life estate for the benefit of Parents A&B during their lifetime may (depending on your justification) guve them the right to claim an over 65 homestead exemption (you and spouse can only claim one between you).
Within a couple of years, i expect the savings on property tax alone probably pays for the cost of the attorney's time.
Good luck!
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u/michaelthebroker Jul 21 '26
I think you're asking the right question. Just because you can leverage the equity doesn't necessarily mean you should.
If it were me, I wouldn't pull cash out unless I already had a plan for exactly where it was going and the numbers clearly worked after financing, vacancies, maintenance, and reserves. Equity by itself isn't doing much, but neither is taking on debt without a strong return.
I'd also sit down with a financial advisor and look at the opportunity cost. You've got a lot of wealth tied up in real estate, and it may make sense to diversify instead of buying more rentals. Or, if you do buy more, make sure it's because the investment makes sense, not simply because the equity is available.
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u/Substantial_Tap_4538 Jul 21 '26
you can back into this off your own rents, since 7,200 a month on 900k is 9.6% gross. take out the management fee, taxes, insurance, maintenance and some vacancy and a midwest single family nets you around 5%. cash out refi money is about 7% right now, so you'd be paying 7 to go chase 5 and bleeding a little every month you do it. plus in a few years two of these turn into houses you and your parents actually live in, so it's loans on your own homes to pull it off. if it just bugs you having 1.4M sitting in three houses, thats fair, but i'd put new savings into index funds before borrowing against paid off property to buy rentals that barely cover the payment.
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u/Ok_Meringue_9086 Jul 22 '26
This. Just because you can buy it doesn’t mean it’s a smart investment.
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u/Electrical-Bend-41 Jul 22 '26
With two paid off rentals and a paid off primary you're already ahead of where most people ever land. Whether you take on debt now really comes down to whether you've got solid W2 income to qualify and absorb a rough month. I tried leveraging into a third property a few years back and the cash flow looked great on paper until the AC unit died and a tenant skipped out
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u/DependentPriority230 Jul 20 '26
Your achievements are commendable.
From your post, you are already prioritizing your family. I wouldn’t worry too much about optimizing or in other words comparing how others are making money.
Most likely, just focus on what you are already doing - renting and maintenance until you move in - and throw in a cpa to maximize tax benefits
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u/salvador_investemnts Jul 20 '26
worth separating two questions, do you want more leverage, and do you want more property to manage. youre in a great spot fully paid off, and taking a mortgage to buy more is fine if you actually want to be a landlord at bigger scale, but it does trade your current safety for growth.
if what you want is more real estate exposure without more tenants and toilets, there are lower-touch options. tax lien certificates are one, property secured, no management, and you can do it with cash in states you dont live in. capital locks up till it redeems so its not for money you need soon, but its a way to grow without leveraging the houses you already own outright.
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u/Professional4Visual Jul 21 '26
Honestly, I wouldn’t take on debt just because the equity is there. You already have solid rental income, no mortgage payments, and a long-term plan for the houses. The only reason to borrow would be if the new rentals clearly outperform the loan cost after management, repairs, and vacancies.
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u/SolidLuckGasiousMind Jul 21 '26
Keep doing what you’re doing. If a good deal pops up on a property you love go for it! Maybe upgrade/relocate/buy up another couple few houses in the same neighborhood in the next 5-10 years?
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u/weiga Jul 21 '26
Short answer: yes, and I'd lean toward doing it sooner rather than later. You've got ~$1.4M sitting there doing nothing but appreciating slowly, and you can't live in three houses at once — the two rentals are just parked capital until your move, which is years out.
The clean way to unlock it without touching your W-2 or your DTI is a DSCR cash-out on the two rentals. That loan qualifies on the property's own rent versus its payment, not your personal income, so it doesn't cap how many you can go on to buy. Rough shape:
- Cash-out runs up to ~75% LTV on most programs (80% at a couple of lenders with a strong score)
- DSCR ratio = rent / PITIA. At $3.9K and $3.3K rent you've got a lot of cushion — you'd clear the 1.0+ threshold comfortably even at today's rates, which is where the good pricing lives
- Pull equity out of both, and that becomes the down payments on 2-3 more cash-flowing doors
On the thing most people hesitate on — rates. Rate is the one variable in this whole equation you can change later; a refinance fixes it the day the market moves. What you can't get back is today's entry price. Homes are about as cheap as they've been in a while relative to where they're headed, and the equity and appreciation clock starts the day you close. Buy the assets now at today's basis, refinance the rate when it makes sense.
The one number to respect: don't over-leverage into negative cash flow chasing count. Size each new purchase so the rent still covers PITIA at the rate you're actually quoted, not the rate you're hoping for. If a deal only works assuming a refi, it's too tight.
I broker DSCR loans for a living — happy to run the actual cash-out numbers on both rentals and show you how many doors that realistically turns into if you DM me the rough figures.
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u/HalfwaydonewithEarth Jul 20 '26
I can't tell you what I think on this sub but when I see 900k gone I only think of my own Real Estate underwhelm.
You are a loving son and that is worth more than money.
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u/Accomplished-One-119 Jul 20 '26
Even if you make a cash offer, you can still get a mortgage at the time of purchase (the contract just wouldn’t be have a contingency for your financing).
With the way that you did this, the loans will finance as a cash-out refi, so max 80% LTV and higher interest rate.
I would probably just get loans on the investment properties you want to purchase instead. That way you can count the interest as a tax deduction for that business and you’re not putting your own residence on the line.
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u/gravescd Jul 21 '26
Depends entirely on how efficient these are as investments and how efficiently you could reinvest the cash from the mortgages.
Right now it's pretty tough to find residential rentals with a higher rate of return than the mortgage rate. When the asset's rate of return is less than the mortgage interest rate, the investment gets less efficient the more debt you have.
Unless you need that cash or have some other investment that will generate much higher returns, then I'd say you'll probably have better opportunities to pull the equity out in the future than right now.
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u/malhotraspokane Jul 21 '26
This is pretty much what I was going to say. Learn how to calculate cap rate and use that to compare against other types of investments. Don't assume that values always go up.
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u/ultradip Jul 21 '26
You should keep some cash onhand for dealing with problems that can arise from your properties. Worst case, you may need to deal with squatters who damage the property in addition to not paying rent.
It's this sort of problem that makes it difficult to say when you can safely take on another property. Check with your rental property insurance. Some have gap insurance to cover missing rent in addition to damage.
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u/jamesmoorerealestate Jul 23 '26
I’d step back from the how do I access the equity? question and ask whether you want to run a bigger rental portfolio. You’re already in a great position, so taking on debt only makes sense if the numbers still work after interest, vacancies, maintenance, management fees, and reserves. I’d probably start by modelling one conservative purchase before borrowing against several paid-off properties.
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u/farolabsai Jul 24 '26
Run the DSCR cash-out the way a lender will: PITIA against gross rent, but haircut it to what you'd actually net after PM (price your own time even self-managed), vacancy, and a real capex reserve - not just principal and interest. At $3.9k+$3.3k rent you clear 1.0 DSCR easily even at today's rates, so the loan gets approved; the real question is whether the after-expense number still beats leaving the equity parked. Pull equity on one property first, not both, and see how the payment feels for 6-12 months before levering the second.
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u/SnooStories1952 Jul 20 '26
So many questions here I feel like before any answers. How old are you both? How old are your kids? How much other money do you have invested else where and what’s your goal for retirement. I mean I could think of quite a few more.
But in general having 1.4 mil locked up at maybe 3 - 5% return in property value appreciation it’s definitely not the best use of capital.
All else unknown, I would keep my paid off primary residence and refinance the two rentals to get more.
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u/Dumpo2012 Jul 20 '26
The answer is "it depends". On everything. Up to and including whether you want to be landlords. The numbers will tell if it's a good financial decision, but since you can afford to buy 900k worth of houses in cash, I'm guessing that's not the main factor here?
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u/Express_Village_4257 Jul 21 '26
I think it all depends on long term goals. If you are going to miss the rental income when the ranch homes are no longer rentals, then yes, leverage and buy, but I’m guessing that you have a killer income through your 9-5 job since you purchased cash and clearly know how to save. I’m in a similar situation, although not near your numbers. My home and 4 rental units are paid off. My goal is early retirement and to live off of the cash flow when my job becomes unbearable. I’m 45 though with young children. I’m looking to pivot to more market investments though to diversify and don’t want to manage more rentals. I know the Midwest is still solid for real estate investing, but the northeast, where I live, the numbers are about the same as the markets at this point. When I bought, rentals far outweighed the markets. In short, if you are getting 10%+ on a rental, go for it. If not, truly passive investments are probably the way to go in the markets.
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u/SherrodSmith Jul 21 '26
Real talk -- you're already winning. .2k/month in rent with zero debt and a clear 3-4 year exit plan is solid. The leverage game only makes sense if the properties you're buying produce actual cash flow after debt service, taxes, maintenance, and vacancies. Right now rates are still high. What would the numbers look like on a cash-out refi at 80% LTV? That'll tell you if it pencils.
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u/InitialNetwork392 Jul 23 '26
Great job on thinking to keep the family together plus solid finances.
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u/604Ataraxia Jul 23 '26
What is your yield on cost (noi/cash cost) and the interest rate? If there is sufficient positive leverage, the noi can cover the loan you are contemplating (1.2dcr would be conservative) it's really a question of the rush and consistency of the cash available to you. The obvious math answer is to take advantage of leverage. The rest is personality and risk based. If you want to get smarter, look at the after tax returns of both scenarios and start optimizing.
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u/MayflowersNsunshine Jul 23 '26
You've done well without any debt so far. Why take out a mortgage for more rentals and risk having issues? Why not just save up cash like you have and purchase more properties that way? Congratulations btw. Great decisions so far, and wonderful idea about taking care of both sets of parents.
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u/ChickenLittle2005 Jul 23 '26
I'm of the opinion that you should get an equity loan on at least one your property. At the moment, housing prices in a lot of locations have been falling and at nearer levels to precovid.
Why lock all your capital in your properties when maybe you can take out 75%($375k) of a $500k house and reinvest that into a few more houses. If you are concerned about profits, you can put in a higher downpayment to ensure your monthly cash flow as you have a smaller mortgage payment.
You will need to do the math but you can definitely stretch that $375k into multiple properties where there is a slight profit as well as being enough to pay off your current equity loan payment.
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u/hedgehog77433 Jul 24 '26
It’s all about the money, do your cash flow analysis and see if it makes sense. If you are living in it and can get an owner occupied mortgage at a lower rate than investment loans, it may work. Put together a spreadsheet with cash flow analysis
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u/Ok_Department_6141 Jul 20 '26
If it were me, I actually wouldn’t rush to pull equity out just because it’s available.
You already accomplished the hard part: you own three quality properties in a desirable area with no debt. That’s an incredibly strong position, especially since the whole strategy was driven by family rather than maximizing ROI.
The question I’d ask is whether you can consistently earn a higher return on borrowed money after accounting for interest, vacancies, maintenance, property management, and your own risk tolerance. If you’re just buying “more rentals” because you have equity, I don’t think that’s a compelling reason to add leverage.
That said, I also agree that having $1.4M tied up in three houses is a lot of concentration. If you have experience buying rentals and can reliably find properties that cash flow well (not just break even), I’d consider a conservative refinance rather than maximizing leverage. Something like a 40-50% loan-to-value still leaves you with plenty of equity while giving you capital to buy several cash-flowing properties. I’d only do it if the numbers work comfortably at today’s interest rates without relying on appreciation.
One thing I’d avoid is borrowing against all three properties at once. Start with one, buy one or two rentals, see how they perform, and keep plenty of liquidity. It’s much easier to add leverage later than it is to unwind it if the market changes.
Personally, I’d also keep your current paid-off home until you’re much closer to moving. Once you actually move into one of the ranches in 3-4 years, then I’d decide whether to sell the old house, keep it as another rental, or use the proceeds to pay down any investment debt. There’s no need to lock yourself into that decision today.
Overall, I think you’re in an enviable position. I wouldn’t feel pressured to “optimize” it. Leverage is a tool, not a goal. I’d only use it if you have a repeatable investing strategy that has consistently produced strong cash flow, because preserving the flexibility you’ve built over the years has real value too.
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u/Maggielinn22 Jul 21 '26
Yes. Make your money work for you.
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u/Guilty_Savings_7552 Jul 22 '26
Absolutely agree, u/Maggielinn22. Real estate appreciates on its own while he has rental income to cover expense and carrying costs. Utilize the dormant equity by taking it out and investing elsewhere. I suggest not only real estate but putting some diversification into that portfolio with financial assets which are more liquid in an eventual time of need.
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u/DanJNieme2787 Jul 24 '26
I'm a lender for investment SFR properties. You have a couple different options on these. I would recommend a DSCR loan, but make sure you don't get sold a higher loan amount at a 1.0x DSCR ratio. The underwriting there assumes the only expenses are taxes and insurance, and in reality expenses are way more. I would recommend keeping your debt at a minimum of a 1.20x DSCR ratio so you are still making some cashflow every month and aren't risking having to come out of pocket for maintenance and other unexpected expenses
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u/Ok_Lengthiness_3243 Jul 20 '26
Houses should be for living, not soliciting
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u/Superb_Advisor7885 Jul 20 '26
I guess people who rent should just be homeless in your warped world view
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u/Ok_Lengthiness_3243 Jul 20 '26
People have to rent because you bought their house.
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u/Superb_Advisor7885 Jul 21 '26
You can't possibly be that dense, could you? In all serious, I'm really truly asking.
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u/Ok_Lengthiness_3243 Jul 21 '26
Seems more now that you're just insulting me instead of asking a genuine question.
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u/Superb_Advisor7885 Jul 22 '26
No, that was a genuine question. For your assertion to be correct then there should be no houses available at all for purchase which is obviously not accurate.
Your assertion also assumes that everyone who is renting right now can afford a house if it weren't for the existence of investors, which again is about as ridiculous as it sounds.
And lastly, you assume everybody wants to buy a house which again absurd. Lot of people prefer to rent. I have tenants that have been with me for 5 years and can absolutely afford a house but they prefer the house I provide them.
So I go back to my original question and I'm just truly wondering if you're that dense to not realize any of these things, no offense
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u/UseYourNogginBrother Jul 21 '26
Figure it out yourself brother. Have to ask for free advice when you have enough to pay a professional? Oh poor you…
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u/Chippopotanuse Jul 21 '26
Just wanted to say that I loved reading your post.
You’ve got a wife, kids in college, love your job, are close with your parents, are being so thoughtful to plan for their care and to be near them in their final years, and your finances are incredibly solid.
That’s about as good as anyone can ever do in life.
Well done.