Home Equity Loan or Save

2 Replies

Hi All,

I purchased a 2 family house that I am living in. I have 200k equity in the house, 450k purchase price and the tenant is covering all but about $600 per month in living costs including utilities. I want to begin buying other houses which is why I stopped renting and moved to my current place. My question is I only have about 42k cash in the bank so I would ideally like to use my home equity for a down payment. If I do this, I will be 100% financing the next property between the Home Equity loan down payment and mortgage. Does this seem like a good plan if I can find the right deal? Are there any alternatives in my situation? It seems like if this were to work out then I am basically at a stopping point unless I have more equity remaining to use on another property. Thank you!

Michael, Using your equity is a great strategy if it gets you into a new property sooner but doesn't put you in a stressful financial situation.  If I understand correctly, you have negative cash flow on the rental property, will this new property also be a rental? Do you have reserves in place for vacancy or emergencies?

It also sounds like you are buying locally at very high prices, have you considered leveraging your funds further by buying multiple lower priced properties in other areas that might cash flow better. What's your game plan?

Originally posted by @Micki M. :
Michael, Using your equity is a great strategy if it gets you into a new property sooner but doesn't put you in a stressful financial situation. If I understand correctly, you have negative cash flow on the rental property, will this new property also be a rental? Do you have reserves in place for vacancy or emergencies?

It also sounds like you are buying locally at very high prices, have you considered leveraging your funds further by buying multiple lower priced properties in other areas that might cash flow better. What's your game plan?

Thanks for the reply, Micki M.. The rental property that I'm living in has negative cash flow but only because I'm living in 1 of the 2 units. If I were to rent it out completely it would be an okay investment bringing in around $12k per year, 5% cash on cash and 6% cap. I would not have purchased this as a pure investment but I needed to move and the area is very desirable, great appreciation rates as well. The new property will be a rental, likely 2-4 units. I currently do not have reserves in place as I've owned the house for only 6 months and I've had tenants for only 2 months.


I can find less expensive houses in the area, however they are all likely high by national standards, granted they also call for higher than average rents. I am considering buying 100 miles north, although I have some concerns about being an absentee landlord.


I am struggling to create a game plan. I am conservative by nature of my career as a CPA. I like the idea of a buy and hold strategy but I'm also very anxious to see some traction with this and I feel like I need a better strategy than buying good investments for the long term. I don't want to get involved in massive rehabs or flipping so I keep falling back on buy and hold but I feel like my purchases will be few and far between. Any advice for an alternate strategy that can multiply properties quicker? I read about hybrid strategies on this site where you buy discounted properties and do modest improvements to add value (ie: turn a 2 bedroom into 3 bedroom), and hold for medium term.

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