Using Equity to buy Investment Homes for rentals
Is it wise to refinance my own personal property (current balance of 155k, 9 yrs left of a 15 yr loan, 365k current market value) to cash out the maximum amount of equity (about 120k and go to a 30 yr loan term) I will pay off 50k debt and use the 70k to purchase several investment properties. I am looking for properties that I can buy and hold. I will buy with 203k loan and refi to a conventional loan using the 70k for the 5% down payment to purchase 10 houses in the next 3 years and lease them out. Does this seem like a reasonable plan?
Hello Cristina,
This idea does not sound bad to me. However, have you considered a HELOC? Most banks will give you 80% of the value of your home. If your home is estimated at $365,000 an 80% HELOC (Home Equity Line of Credit) will give you $292,000 to invest with. You can use this amount to your leisure as long as you abide by the terms. Hopefully this will help you out.
I am not sure if you can do 10 homes with 5% down. Can you elaborate a bit more on this?
I think your plan is good except the 50k in debt repayment. You could use that 50k towards buying more rentals instead. The cash flow from the extra properties could be used to make the monthly payments for your 50k in debt.
The big difference is, when the debt is repaid this way, you will still own the properties the 50k was used for plus more equity from debt paydown/appreciation and don't forget the cash flow.
It would probably be helpful to know what kind of debt your considering paying off - e.g., is it high interest rate credit card debt? Probably need to know how the interest rate on the debt compares to the return you can make on your real estate investments to know whether it make sense to pay off the debt or use that capital investment purposes.