Equity- should I invest or buy

5 Replies

I'm posting from my phone, and when I browse topics they are not divided into subsections so I haven't browsed much. So this might be a repeat question.

Anyway I'm 37, bought my current home back in '09 for 250k. After a refinance to rid my PMI I currently owe just under 200k. Current value of my home now is a guess of about 420-430k here in southern California. I feel I should make some kind of move, I've always wanted to invest but after I lost my first home in '09 due to the crash I backed off. So my goal when I was younger was always to have some incoming cash flow giving me the option to retire early. Ideally if I can do it now I will.

So right now I feel I have a few options: 

A) I can sell this house and roughly have 200k in cash to buy in a cheaper area, put it all into a purchase and maybe pay off the mortgage in about 5-7 years. This would be a safe route as I wouldn't invest but I'd be paying off my home real soon and not worry about a mortgage. 

B) Keep this one. Keep renting out my other 2 rooms (1000$) in cash monthly. And try and invest by other means without selling. I have some cash saved so I can look into a multifamily in a cheaper area as well. ( I'm by the coast so everything here is expensive) 

C) Keep this one but rent it out completely and buy another property as my primary ( possibly in a cheaper area). The rents for my size properties are between 2200-2500, my payments with taxes/insurance, water are 1800$. So some cash flow can be had here of about 500$. My job makes it easy for transfer as we have outlets in every state, and we can live basically anywhere in the country for work. So an option can possibly be getting a duplex and living in one of the units. 

I know this information might be a bit vague, but what do some of you seasoned veterans think of this situation. What would you do to get started with this equity? Take advantage of it or keep it? Thanks for any replies

@Luis Vaca I don't know much about your family situation, but if you are single and able to sell your primary home I think that is a great solution. You could easily sell your current place tax free due to it being your primary residence, and then roll the money into purchasing a new primary home and  buy an investment property. My wife and I flipped our primary residence to get rolling back in 2015, and that is how we got the equity to buy our 9 unit in Berwyn. Making aggressive moves like this can really help you get started!

If I were to sell now, I keep hearing the market will go in a downturn pretty soon. So if I go that route to sell now, maybe i could then wait for 6-12 months after that to see if prices start to drop? Meantime I would rent a room in those months for 5-700$

First thing you need to do before you make any decision sis spend the time necessary to educate yourself on finances, investing and income properties.

First thing first. You present property is not a good income investment. With a value of $420K and potential rent at $2500 you will have a major negative cash flow long term. You will need to put yur own money into it every month to keep it going. It is not a investment for income. You will have negative cash flow and will only be able to rely on appreciation to profit....extremely risky.

Additionally if plan A is a serious option for you then you are a very low risk investor and may want to reconsider directly investing in real estate and may be better off putting your money in a REIT.

A investor, assuming they have the ability to move, would sell the CA property and move their money to where it can actually produce positive cash flow. Neither A, B, or C is a good decision if you want cash flow. I would sell and move out of CA to invest.

@Luis Vaca

The market is so hot right now that it is a fabulous time to sell. This seller's market won't last so - if you're thinking of selling - sell now.

I would not hold and rent out this property because you don't get nearly enough return on the money you have tied up in it.

Far better to take the money and buy 4 smaller places that make at least twice the cash flow this can produce.

Good luck!

you don't want to take your 200k tax free gain and turn it into a taxable number … 

so if it was me I would either sell the home take the tax free gain and figure out what to do next.

or I would stay in it.. I would not rent it though and lose the gain .. UNLESS you think there is still chance for some strong upward movement in value..