Hi Everyone: Boy am I in the maze. I am trying to figure how to use my current home as leverage to invest.
I have about 220K in equity in my home and wonder if I should use some of it to purchase a new home for rental or rent out my existing home?
My current monthly mortgage is approx. 1500.00.
Of course if I borrow anywhere from 100 to 150K, I will likely add about 300.00 to 400.00 to my current mortgage (1800 - 1900, according to my existing lender). Homes are renting in my area for approximately 2K.
If I rent out my home for 2K; I would have to borrow equity to purchase a new place to live and have about an 1800 - 2000.00 mortgage with the existing home mortgage being close to the same.
If I sell my home, I would have approximately 220K in gains to use.
Can anyone suggest the best approach when considering using one's leverage in home for investing? Does it make sense to increase my home debt to invest in other property???
HELOC (Home Equity Line Of Credit).
This way you can get money from the equity in your home (up to 95% CTLV depending on lender).
Selling the home you live in doesn't make sense. Renting it makes less sense (maybe renting rooms, that makes some sense). Taking a straight refinance gets you a one time shot of cash, and some hefty fees.
The HELOC makes the most sense. It is a line of credit. You can use it, then pay it back (think BRRRR) and repeat until the term ends. You don't have to use it all, and you can only use what you need for a particular deal. This reduces costs and anxiety. No deals, no extra payments (because you haven't used the line).
You only want to increase your debt in a primary residence in two cases. 1) You make more money than it costs you. Or 2) You are planning on paying the HELOC back in a short time frame using BRRRR, syndication, sale or other takeout.
Hope that helps.
I disagree with the previous poster initially but realize that it is all dependent on your risk tolerance, personal finances, and overall strategy. I wouldn't take the HELOC because the rate can jump up. A refinance will lock in a rate for 30 years and although rates are a bit higher now, they are still very low. You can use the money in many ways that will make more than the loan will cost you. HELOC funds will be tax free dollars as will sale proceeds if you've lived there for 2 of the last 5 years (I believe is still the rule). But none of these options make sense if you are debt averse; thus my initial sentence stating that all of this is based on your risk-tolerance etc.
If it were my decision I'd sell or refinance for the long term debt. Either of these could be source of funds to springboard an investment strategy. My two cents.
@Laurieann D. Based on the information you provided, I would use a two stage approach.
1. I would see if I can rent a few rooms in the house to get additional income. Of course, it depends if this is even an option. Some people don't like to live with others.
2. I would take a HELOC as explained above.
Combining both 1 and 2 allows for you to continue to build cash quickly and have enough money to get started. In real estate, you will need plenty of cash.
If you are debt averse, then I don't think you should be investing in Real Estate. You really just need to understand what's good debt, what's bad debt and how to really maximize the usage of money.
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