5 Things to Know Before Buying a Duplex, Triplex, or Quadplex (Rookie Reply)
35:50 Share

Okay, cool. My mic was doing this weird thing where I was switching back over to my headphones. Okay, let's get your questions answered. I'm Ashley Kerr, and I'm here with Tony J. Robinson.

And welcome to the Real Estate Rookie Podcast, where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today, we're diving back into the BiggerPockets forums to get your questions answered. Now, rookies, the forums are the absolute best place for you to go to quickly get all of your real estate investing questions answered.

by experts like me, Ashley, and so many more. So today we're going to discuss first what to know before buying a duplex, triplex, or fourplex, what loan options are really best fit for a first-time home buyer, and finally, how to pull equity out of your property. So with that, let's get into today's Rookie Reply.

Okay, so our first question today is, if you are going to be buying your first ever two to four plex, so a small multifamily, whether to live in or just to invest in, what are some of the concerns and questions on your mind? Things specific to two to four plexes. Okay.

This is a good question. I like this one. There's definitely things that are different compared to buying a single family property. Tony, have you ever purchased a property that had more than one unit on it? Just the hotel, but never on the traditional long-term side. Yeah. So like the first thing that comes to mind for me is utilities. So are they separately metered? Are they all on the same meter? Yeah.

So very common near us, the water and sewer is not separately metered, at least water. I don't even know if they can separately meter sewer, but the water is on the same meter for a lot of the multifamily properties. So the owner pays the water. So I do have one property. It's a duplex where it's only...

It's only one meter for electric and only one meter for the gas too. So I pay those bills. So their rent is higher than another property where those utilities are not included. I prefer to have things separately metered because then they're paying for exactly what they're using.

And you don't have to worry about them sticking an AC unit in their window and every window blasting it all summer long and decorating their house, you know, with tons of Christmas lights and having the heat on, but the windows open, you know, so that is all at the same time, right? They're doing all those things at the same time. What I would say is I prefer the units to be separately metered.

Yeah. Let me ask, actually, for that situation, you bake it into your rent, but is it ever an option to just kind of bill that back to the clients and just say like, hey, we're going to, if there's four units and the electric bill is $1,000 for all four units, then each person's bill for this month is $250. Have you ever thought about doing it that way?

Yeah, so there are, like, some rules and laws, like, depending on your state or whatever, about that specifically how you can do it. Like, we've done it before as, like, a flat rate. So we can't, like, say, like, oh, you're each paying 50%.

Like, even though it's two units, you're each paying 50% of whatever it is because one tenant could be, like, taking three showers a day and the other person not. So I've seen it where we've done a flat rate where you just pay an extra $30 per month. So we say your rent is... But now we do it because of tenant landlord laws. You can't, like...

collect rent or evict someone for non-payment of extra fees. Like it can only be for rent. So now we include everything into rent income. That is a very good distinction to know about. Yeah. And then also I've seen it before where people do it based on how many

people are in the property too. So like, you know, if you have three people in your house, you're, you know, in your unit, you're paying maybe, you know, $20 per person for the water bill. And then if the other person only has one, they're just paying $20 towards the water bill or something like that. But I think it's easiest just to never have any disputes or complaints instead of trying to, you know, split it, you

It is a percentage wise every month. Like, I feel like that would just be like a headache. I wouldn't want to get into because, you know, the one tenant will say like, yeah, I have four people, but they also wash their car every day, draining water, you know? So I just wouldn't want to have to deal with that. That makes sense. Okay, cool. So we got, we got utilities, uh,

What else, Ashley, is important? I think one thing for me, and you and I, we actually, but we talked about this on the podcast before as well, but sometimes the inspections that you need to do are slightly different as you get into some bigger properties as well. I don't know if maybe on like the two to four units, if this comes into play as much, but like, I know some of the hotels that we looked at, we had to do environmental testing.

And I think one of the deals you looked at, you guys had to go into like a phase two of an environmental test. Yeah, that was self-storage though, not for small multifamily. Like if you're under four units-

As long as you're getting a residential mortgage on it. So that's more for commercial side of lending. So four units or more, they may ask for that. Yeah. But I guess just in general, are there any inspections that you typically do want to complete on a small multifamily that maybe you don't typically do on a single family home? No. The biggest thing I would say is, at least not in my market, but like looking at the

zoning for the property make sure it's actually zoned or however many units it's saying that it has and that it wasn't an illegally made extra unit so when you go and rent it out someone can come back and say like oh like from the county like you're getting to dispute with your tenant they turn you into the county that this isn't actually a permitted unit and now you have this property where you can't rent out that one unit

I was looking at a property in Rochester, New York one time, and it was a duplex, but they had an unpermitted third unit. So it's listed in the listing as three units or whatever. And then when you came to the property for the showing, the agent said...

this property is only permitted for two units, but it has this third back unit. But don't worry, every two years when the inspector comes to do the inspection on the property to give it its rental license for the year, the tenant in the back unit just says that they're part of the upstairs unit and they rent it together and that's one unit. And I'm like...

wait, what? So I would have to rely on having this tenant for the life that I own this property lie to the inspector to say that he rents it with the upstairs person and they're on the same lease and they live together. And it was just like, okay, well, what if this person moves out? I got to get someone else based on who's going to lie the best. Obviously we didn't buy that property, but

You want to make sure that it's actually zoned and permitted for however many units you're buying the property for. The other downside, too, of getting stuff that's unpermitted is that

When you buy it, you now assume responsibility for that. And say an inspector does come and they're like, hey, this was never permitted. You got to tear this thing down or break open this wall so we can inspect the plumbing, the electrical or whatever it may be. You assume responsibility for that. So I think that is, you know, also part of the challenge when you buy stuff that's that's unpermitted. Yeah. The next thing I would consider is common areas.

So if there's like a common hallway they enter, common stairwell, like being very specific in your lease as to who is responsible for maintaining those areas. So this could be you. Like we have a five unit where we have a cleaner that comes in and cleans the stairways in the common area. Okay.

It could be that you say to the lower tenant, we actually give you a discount of $20 per month or whatever to keep and maintain. Or maybe it's like split in half. Halfway down the stairs is this tenant. Halfway up the stairs is the other tenant. But, like, it is amazing how...

Like people don't care because it's not their living area and they don't want to clean up after someone else. So they literally just refuse to clean a cleaning area. And then you get the other people who just take full responsibility and take care of things. But that would be something is the less common areas, the better. Because it's just more to maintain, more to oversee, right?

And, you know, like in the apartment complexes, there's like a rec room, there's a library, things like that. And just nobody really cares for them because it's not their apartment. And like we constantly have to send someone in to like put the books back on the shelf and things like that. So I would say less common areas, the better, because it's going to be you that has to take care of them.

I think, Ashley, let's talk a little bit about the upside, though, of the small multifamily. I think that from a from a house hacking perspective, small multifamily is one of the best investments that you can get into. Have you ever house hacked? No. No.

Yeah, neither have I. But we've interviewed tons of guests on the podcast who have leveraged house hacking as their way to get started as a real estate investor. And the benefit of house hacking small multifamily is that you can use some of these primary residence type loans that are typically better rates.

lower down payment percentages, just the cost to acquire and own the property is cheaper. And then once you satisfy the requirements of that loan, you get to replace yourself with a tenant and go repeat that process somewhere else.

You know, we interviewed Nancy Rodriguez on the podcast, and she's one of the folks that I know that leveraged the NACA loan, N-A-C-A, and it was a 0% down, zero closing cost loan, so very little cash out of pocket. I actually know someone else who bought a small multifamily using NACA, and he got like $5,000 back at closing because he was able to negotiate a credit during the closing period. But there are options out there where you can get into a property for very little out of pocket, and

have a unit for yourself to live in, and then two or three other units that you can rent out to your tenant. So a really low-cost way to get started as well. We actually had someone comment recently on one of the YouTube videos where you talked about that, and they said that it was an extremely difficult and grueling process, and they said, don't do it.

So like what is your kind of feedback to that as to like you think of like there's the construction loans and things like that where you hear the same kind of advice from people as to like it is extremely hard to do. Like they make you jump through all those hoops. So what would you say to someone who's maybe never done a deal but this is an option but then they're hearing this person say that in their ear?

If you never do anything hard, you will never accomplish anything of meaning. And it doesn't make sense to me that people say, I want to be a real estate investor, but I don't want to do anything hard.

How is that going to work? Because if it were easy, everyone would do it. So I guess you've got to ask yourself if what's more important to you is not jumping through hoops, is not going through all of the processes that come along with getting a really cool loan product that's 0% down, zero closing costs. You can use up to four units. If you would rather just put down 20%, then do that. Right. But if you want to be able to save on those costs and yeah, sometimes you got to do hard things.

So I think the last thing I'll kind of add to this question to kind of wrap it up is the parking, the garage situation, and storage. Just make sure you know when you're doing a lease agreement. Like who's getting the parking spot if there's more than one or two. Like especially when you're doing your due diligence,

having parking for enough of your tenants or, like, knowing which unit because if you don't have a parking spot, that could significantly decrease the amount of rent that you could actually charge for a unit, too. And shared parking can cause problems. Like, you just have a skinny driveway, even though it could fit three cars of, like,

I think of like so many college houses. Like when I was in college, it was like, okay, so-and-so's got to get up. So so-and-so can move their car so they can get out. And then like at night trying to like, you know, determine what order everyone's going to park in based on who has to leave the next day. But like, those are friends that like live together and not, you know, two people that don't know each other that have to kind of coexist. And so we've definitely had problems with that before with having a shared driveway where it's really small and skinny. So I think,

setting like expectations up front has definitely made it a lot easier. Like assigning the garage to only one person, storage areas, where are you allowed to store things? Like not out in the common area hallways, who has access to the basement, who can store stuff there, things like that. Be as specific as possible as to who is responsible for what and who gets access to what or who gets priority to whatever.

Yeah. I think just one last thing that I'll add, Ashley, like if someone is thinking about, especially on the house hacking side, like house hacking, a small multifamily,

there's a chance you may not cash flow when you're living in one of the units, right? Like maybe you're just subsidizing a good chunk of your rental or your living expenses. But I think you do want to make sure that you're cash flowing or at least breaking even if you were to move out and have someone else move into that unit. But the last thing you want is that you're now renting out all four units and you're still putting in money every single month. So just one thing to call out in the analysis piece is make sure that you're break even or cash flowing once you move out of that unit. Yeah, that's a great call out.

Okay, so before we jump into our second question, rookies, we want to thank you guys so much for being here and listening to the podcast. As you may know, we air every episode of this podcast on YouTube as well as original content like my new series, Rookie Resource. We want to hit 100,000 subscribers, and we're so close, so we need your help. If you aren't already, make sure you are subscribed to our YouTube channel at Real Estate Rookie.

Want to invest in real estate but don't have the time or know the best local markets? Rent to Retirement has you covered. And look, here's the deal. They've helped thousands of investors just like you find turnkey homes across the best U.S. markets. And best of all, they do all the heavy lifting for you. With over 250 five-star reviews on BiggerPockets, Rent to Retirement experts help you build strategies to retire early through real estate. And right now, Rent to Retirement offers some amazing incentives on turnkey new construction properties like

up to $30,000 off of new build prices, 0% down loan options, 3.99% interest rates. So guys, don't miss out. These deals won't last. Text REI to 33777 or visit biggerpockets.com slash retirements to start investing in top cashflow markets today. For decades, real estate has been the cornerstone of the world's largest portfolios, but it's also historically been complex, time-consuming, and expensive.

But imagine if real estate investing was suddenly easy. All the benefits of owning real, tangible assets without all the complexity and expense. That's the power of the Fundrise flagship real estate fund. Now you can invest in a $1.1 billion portfolio of real estate starting with as little as $10. 4,700 single-family rental homes spread across the booming Sunbelt, 3.3 million square feet of highly sought-after industrial facilities thanks to the e-commerce wave,

The flagship fund is one of the largest of its kind, well diversified and managed by a team of professionals. And it's now available to you. Visit fundrise.com slash bpmarket to explore the fund's full portfolio, check out historical returns and start investing in just minutes. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's prospectus at fundrise.com slash flagship. This is a paid advertisement.

Rookies, 2024 is the year to protect your rental properties with an LLC. Don't worry about the paperwork. Corporate Direct makes it easy and affordable. Look, they'll handle all the state filings, they'll draft your operating agreement, and act as your registered agent. Plus, they'll help you comply with the Corporate Transparency Act,

which is a new federal law for all real estate investors. This was founded by attorney and Rich Dad advisor, Garrett Sutton. Corporate Direct has over 35 years of experience. And now his son, Ted, a licensed attorney, works with them also. And they've helped thousands of investors protect their assets. Go to biggerpockets.com slash direct for a free 15-minute consultation. Now, don't forget to mention Real Estate Rookie and you'll get a $100 discount. That's biggerpockets.com slash direct.

Okay, welcome back. Tony, what is our second question from the BiggerPockets forums? All right, so this question says, let's say you have a good credit. You have the 20% to make a down payment. You have sufficient income to qualify for the home and you want to purchase. Would you choose either A, to use the first-time homebuyer type mortgage or B, a conventional mortgage? Which one would you pick and why? Now, I think before we answer this, Ashley, let me get your thoughts on this, but I'm

My understanding, like, I don't know if there's any like blanket first time home buyer, like every state kind of has different options. Sometimes local counties have different options for first time home buyers. Like the first time home buyer, I think kind of varies from location to location. Are you aware of like a national first time home buyer mortgage?

Well, first, I think there's a huge misconception. And honestly, I probably thought this for a long time too, but I think a lot of people think that FHA is like first home. First time. And like, I think that is like a huge misconception and like, it is confusing because like it is FH and I could...

100% seen. I probably thought that for a long time too. So I'm thinking maybe that's what they think. But yeah, there's the first time home buyer loans, which even can vary from small local banks too, where they have programs where you deposit

deposit X amount of money into their bank account every single month at their bank for six months. And then if you complete that goal, they will match that. And then you use that for the down payment to close on a property using them as the lender. And then you have to like live there for five years. So

I've seen a program like that for first time homebuyers, but it has to be your first home. Um, as far as a nationwide one, I haven't, but maybe we can talk about the FHA a little bit in case that's maybe what they were accidentally comparing is the FHA loan to a conventional loan. So, yeah. And just real quick, I did do a quick search here and I just like Googled federal first time homebuyer and like, I'm,

I'm not necessarily seeing anything that pops up for that. So, again, what I've seen is that, like, there are state-sponsored, like California has certain first-time homebuyers, as Ashley said, local banks, credit unions, counties, things like that. So I'm glad we clarified that because, yeah, maybe there are a lot of people who never even thought about making that connection that people think that FHA is first-time homebuyer. But the good news is that FHA doesn't only apply to first-time homebuyers in that you can, even if it's your second home,

or your second purchase of a home, you can still leverage FHA. But I guess let's just kind of break down some of the differences. FHA has basically like federal backing, right? It means the government's like ensuring the mortgage that you're getting. So there's more certainty that the loan will actually get covered in the event that you're unable to kind of

step up and do what you need to do with the mortgage. But because there is more certainty with that debt, it is also a more stringent process to get approved through FHA. And there are inspections you have to do. And I've seen certain deals fall apart or heard of investors who have had deals fall apart because they are using FHA. And sellers know like, man,

Like, yeah, you're offering me at full price, but maybe I'll take the offer that's 10K less because it's not FHA and I won't have to jump through all these hoops and the inspections and fix all these silly things that the typical buyer won't ask for.

And then conventional is just like the normal mortgage that most people think about. A lot of people think that conventional automatically means 20% down, but I have seen conventional loans at less than 20%. For example, we bought our first primary residence with a conventional loan at 5% down. So there are options within the conventional space. Now, you do get PMI when you go less than 20%, but a lot of people assume that conventional always means 20%, but that's not always the case.

Yeah, that's a great call out. And I think that's what my sister did too was when she went to get pre-approved, she already had an FHA loan. And she went and got pre-approved for her next house that she was looking for and she was able to do the 5% loan.

down just for a conventional loan, which if you're comparing those two, I would go the conventional route because you're not having to do that extra inspection that FHA does. So like looking to make sure there's handrails put up, different little things that they're going to nitpick

during the inspection that the FHA loans will do compared to conventional where you don't have to do that. And this is an inspection that's completely separate from you doing your due diligence and hiring a housing inspector to actually come in and look at your property. Yeah. Well, one other point here too, Ashley, because I see a lot of people who get kind of caught up in this, but they're like, yeah, I want to put down 20% just so I can avoid the PMI. And I'm not...

Not that I disagree with that, but I don't know if it's always the best option. Because if you can get into a property for 5% down, you got to ask yourself, well, how much PMI will you be paying on a monthly basis?

And is it worth the extra 15% down to avoid paying that PMI? Because sometimes your PMI isn't all that much, but people just say, oh, PMI, I don't want to pay PMI. PMI is a bad thing. But just what are your thoughts on does it always make sense if you have the cash to avoid the PMI or just what are your thoughts on how to navigate that?

Well, I think look at the amount of cash that you would be putting down. So say you did 20% instead of 5%, that extra 15%, what else could you do with that money? How else could you make that money work for you? Okay, so you could put that in like there's...

Like my savings account right now I think pays 4%. So if you could put that into a savings account, make 4% off of it, is that more than what your PMI would actually cost you every single month? Would you be able to make more money? So like say your PMI ended up being...

you know, you were paying 2% or something, you're still making 2% in your savings with paying that PMI. So I would kind of compare, or could you take that money and purchase another property, use that as the down payment? So I think you have to really compare it as to what else could you do with that money and would you make more money than you would be paying the PMI on.

Yeah. And Freddie Mac has a PMI calculator. And again, I think the best place to know your PMI calculations is talking to your lender. But I just punch it in really quickly. And at a $500,000 purchase price, 30 year term, 7% interest rate, PMI is about 450 bucks per month.

Now, 5% on a $500,000 home, what is that? $25,000? 20% down on a $500,000 home is $100,000.

So you have to ask yourself, it's a difference of $75,000 out of pocket to acquire that property. What makes more sense to you? Is it paying $450 extra per month or just shelling out an additional $75,000 at closing? You've got to answer that question to yourself. And I think the point Ashley made about like, hey, where else can you deploy that capital was super important. But I just want more people to think about it mathematically and not just immediately be turned off to the idea of PMI because I think it's not the right thing to do.

Well, if you guys haven't noticed, we love talking about real estate and we love answering your questions. And we'd love if you'd hit the follow button on your favorite podcast app or wherever you're listening. We have to take one final ad break, but we'll be right back after this.

Are current interest rates making you depressed about cash flow? What if it didn't have to be that way? Rent2Retirement has 2.99% seller financing available on turnkey properties. You heard that right. That's a seller-financed 2.99% interest rate where the average cash flow is over $900 per month. They also have options where you can put as low as 5% down on multiple investment properties with no PMI.

Rent2Retirement is the nation's leading turnkey investment company that understands what it takes to be successful in today's dynamic real estate market. Their reputation speaks for itself with more five-star reviews than any other company on the BiggerPockets website. Rent2Retirement offers fully turnkey properties that are newly built or renovated, leased and managed, allowing you to invest with confidence in the markets that offer the best returns. To learn more, visit Rent2Retirement.com. That's Rent2Retirement.com.

Again, text REI to 33777.

Real estate, it's been a cornerstone of wealth building for generations, but it's also often a major headache for investors. You got 3 a.m. maintenance calls, tenant disputes, and property taxes to deal with. Enter the Fundrise flagship real estate fund, a $1.1 billion real estate portfolio built for you.

We're talking about more than 4,000 single-family homes in thriving Sunbelt communities. 3.3 million square feet of in-demand industrial facilities, all professionally managed by an experienced team. With the flagship fund, you're tapping into real estate's most attractive qualities. Long-term appreciation potential, a hedge against inflation, diversification beyond the stock market.

Check, check, check. All of this without complex paperwork, massive down payments, or soul-sucking landlord duties. Visit fundrise.com slash pockets to explore the portfolio, check out historical returns, and see just how easy it can be to add real estate to your investing strategy. Carefully consider the investment objectives, risks, charges, and expenses of the Fundrise flagship fund before investing. This and other information can be found in the fund's perspectives at fundrise.com slash flagship. This is a paid advertisement.

This is a message from sponsor Intuit TurboTax. Taxes was waiting and wondering and worrying if you were going to get any money back, and then waiting, wondering, and worrying some more. Now, taxes is matching with a TurboTax expert who can do your taxes as soon as today. An expert who gives your taxes their undivided attention as they work on your return, while you get real-time updates on their progress so you can focus on your day.

An expert who will find you every deduction possible and file every form, every investment, every everything with 100% accuracy. All so you can get the most money back. Guaranteed. No waiting. No wondering. No worries. Now this is taxes. Get an expert now on TurboTax.com. Only available with TurboTax Live Full Service. Real-time updates only in iOS mobile app. See guarantee details at TurboTax.com slash guarantees.

If you haven't yet, make 2024 the year to protect your rental properties with an LLC. Skip the paperwork. Corporate Direct will get your LLC done right. Like they manage all of the state filings. They draft your operating agreements and act as your registered agent. Plus, they ensure compliance with the new Corporate Transparency Act. Founded by Garrett Sutton, a Rich Dad advisor, and now run with his son, Ted, Corporate Direct has over 35 years of experience and they've helped

Thank you.

This podcast is sponsored by Laurel Road. At BiggerPockets, we're always trying to find ways to help you maximize your buying power. So check out Laurel Road. Laurel Road's banking and lending solutions include student loan refinancing, mortgages, personal loans, student loan cashback credit cards, tailored savings accounts, and more. And right now, for a limited time, Laurel Road's high-yield savings account has an annual percentage yield that's up to 10 times the national saving rates. That's way more than the savings rate you could get from some of those giant banks.

The fully digital account they offer features zero monthly service fees. It has no minimum balance requirement and it costs $0 to open. So visit laurelroad.com slash pockets to learn more. Laurel Road, your partner on the road to financial peace of mind. Equal housing lender, member FDIC.

All right, let's jump back in to your questions. We have our last question today and is, I have a rental in Denver that I've owned since 2013. Quite a bit of equity built up. Good rent, good longer-term tenant. Should I 1031 or is there a better strategy to keep it and borrow against the equity for another rental? So 3.75% in 30-year fixed.

Okay, so let's first go into a 1031 exchange. Tony? Yeah, so...

Sorry, let me start one more time. So section 1031 of the IRS tax code allows us to basically sell a piece of real estate and defer the taxes that are owed on that sale if we use it to purchase another piece of real estate. Now, there's a more technical definition, but in layman's terms,

That's what it is. Because if I just sold a property and I pocketed that money, I would then have to pay capital gains taxes on the proceeds from that sale. But if I put it into another piece of real estate, I can defer those taxes and use all of that money that I earned on the sale of that property. Now, just for anyone that's thinking about doing a 1031 exchange, it is critically important.

that you get a 1031 exchange intermediary, like a company that actually handles 1031 exchanges, because the money can actually not go into your account. When you sell the property, it has to go into the account of that 1031 exchange company. And then they handle distributing that money to help facilitate the purchase of your next deal. But the second any of those funds from the sale hits your personal account, you can no longer use those funds for 1031. It's just a really big disclaimer for people who are thinking about doing that.

Okay, so their question is should they actually do the 1031 exchange or is there a better strategy to borrow against the equity for another rental?

so besides selling the property and doing a 1031 exchange i would recommend looking into a commercial line of credit on your property so that way you can still keep your amazing interest rate of 30.75 percent 30-year fixed rate loan and you can still tap into the equity and use that line of credit to make purchases pay for rehab things like that so

That would be my recommendation instead of going and refinancing into a higher rated interest rate loan product. Yeah, I actually really, really like that strategy. I mean, we don't know how much equity they have in the property, but I think the bigger question is,

Or maybe not a bigger question, but a secondary question or a good follow-up question to that is, what's your goal here? Why are you looking to even purchase this next deal? Are you doing it for more cash flow? Are you doing it because you want a commercial deal? Are you doing it because you want just another appreciating asset? What's your goal in doing this?

And I think once you've got your goal, you've got to ask yourself, well, what what serves that purpose better? Is it maybe slightly reducing the cash flow on this this property in Denver, but then having two cash flowing properties, maybe you get more overall cash flow? Like what actually serves it a little bit better?

Because to Ashley's point, you can't tap into the equity without necessarily refinancing. And I love the idea of the commercial line of credit. But say that maybe you've got a property that you already have in mind, and it's maybe like a bigger commercial deal. You're going to get better appreciation, better tax benefits, more cash flow. But maybe you need all of your equity. And really the only way that you'll potentially tap into all of it is if you sell.

Right. So you've got to ask yourself, what amount of funds do you need? And then what makes the most sense to actually use and deploy those funds? So a little bit more context would be helpful here, but that's what kind of comes to mind for me initially. Yeah. And the option for the line of credit, too, is that.

you're not refinancing where you have this higher mortgage payment now because you're pulling out the equity where like the line of credit, you only pay interest only on most of it when you're using it. And then if you're not using it, it's just sitting there and you're not paying anything more. So I feel like it's a kind of a safety net in a sense that you're not increasing your mortgage payment that you have to pay.

pay every single month so maybe the market does take a downturn well then you don't use your line of credit and you let it sit there but you still have all that equity in your property so that you could 1031 exchange it or you could sell the property and just pocket the cash if you needed to so I like the option of being able to keep the property and still having the equity to tap into it

if it becomes a situation where you're not getting that great of cash flow, you're dealing with, you know, having a lot of tenant headaches, it's not,

maybe has a lot of capital expenses coming up that you don't want to pull out of pocket to pay for and you just don't want to deal with it, then maybe that's the time that I actually go and do the 1031 exchange to get out of the property while you can and then use that money to purchase something else that will maybe be an easier management for you or have a greater return.

Okay, well, thank you guys so much for listening to this week's Real Estate Rookie Reply. If you want to get involved in the community like all these other investors, go to biggerpockets.com slash forums. If you are a new member and have not gone to the new member introductions, I highly recommend you do so. I just highlighted someone on my Instagram the other day who went and made an introduction telling them about themselves, what they were trying to do in real estate, and what kind of connections they had.

They made, there's also a great post by a CEO of bigger pockets, Scott trench of how to do a great introduction. So make sure you check that out and connect with other like-minded investors in the bigger pockets community. I'm Ashley and he's Tony. Thank you guys so much for listening to this episode of real estate rookie. And we'll see you guys on the next episode. Cool. Yeah. Good. Those are good.