[USER]

I feel like I am at a point that I need to be taking additional action for my own FI. My circumstance is as follows:

Early 40s, married with two young kids (under 8 y/o). We live in Texas in the Houston area.

Both my wife and I work and earn roughly $300K per year combined. Both of us contribute just enough to max out our employer 401K matches and no more.

We also have a brokerage account that we don’t want to touch since it has yielded about 6% average over the last 5 years, a couple of 529s for our kids, a Roth IRA and life insurance policys if anything would to happen to my wife or I.

I mention this in case it allows other avenues I am not thinking of for the question i am about to ask.

We just bought a new home and turned our previous home into a rental which was a much easier process than i ever imagined.

The rental house is worth roughly $400K and has roughly $300K of equity in it.

I was raised to pay down debt as a kid and not take any debt on unless necessary so I aggressively paid down our last home as much as possible hence the large amount of equity.

I understand now that logic was flawed with my new direction. I have a 2.35% interest rate on the rental home.

My question is, what’s the best way to access the equity in my previous home so I can roll that into more rentals.

I have convinced myself that snowballing the equity into one, two, or three rentals even is my next move (open to discussion about this for sure).

HELOCs seem to be running 8 to 10% (haven’t looked in a couple of months) which nearly makes me nauseous borrowing money with that amount interest.

Can anyone provide any advice on better ways to access the equity (short of selling it)? Or am I off base with what I think my next move is and what am I possibly missing?

Thank you everyone in advance for the help and advice!

[Dawn]

How much has the value of the rental property increased since you bought it?

I would question whether or not it’s worth keeping it at all since you have a lot of equity in it and there could be a significant capital gain that you could avoid paying taxes on if you sold it in the next two years.

Then you can take all your equity and use that money to invest in new properties.

[Frank]

You will only get money out of it at prevailing interest rates unless you sell. Honestly, that is what I would do if there are substantial capital gains to get the tax exclusion before it expires.

You should also be maxxing out your 401ks with that kind of income.

Your brokerage returns have been terrible unless you were something like 80 years old.

That speaks to being inappropriately conservatively invested if that is long term money that you are not touching anyway.

But if you moved that to Interactive Brokers and added the money from selling the house, you could borrow against it at favorable rates.

(Just make sure it remains conservatively invested if you do that.)
And while we can all appreciate the benefits of how we were raised, that is not really a good basis or process for deciding how to approach one’s finances as an adult.

As Emerson wrote in Self-Reliance, “A foolish consistency is the hobgoblin of little minds, adored by little statesmen, philosophers and divines.” Meaning that just because you did something or had some opinion in the past is not really a legitimate basis by itself for continuing with it in the future.

[Jule]

The best way is to leave your equity alone and save for the down payment of your next rental.

I should also mention that a 6% return for the last five years in a brokerage investment is not good, at all.

It should be closer to 15-16%. Reevaluate your asset allocations.

You are losing money once you factor inflation.

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