Invest (and pull) Payments into Current House or Save?

Question

Hello everyone -

First post. We've recently bought a house (our full time house). We're in a position to make high additional principal payments into the home  - but would like to get into the rental market eventually (perhaps a year to two years out). Should we continue making high payments into our current home, and then pull a second mortgage out to begin our rental properties - or should we just save the money outright until we're ready to dive in?

Thanks so much!

Justin Hannah · Answer

@Jessica Oney thanks for your first post!  Good question and i think its up to each person.  My view on it is a primary residence is never really an investment you should dump a lot of money into if your purley just looking to build a rental portfolio. Unless you are using your primary as buying a fixer upper and remodeling to sell two years later to get more cash to buy more rentals, i have done especially when i had no money that how i got started.  Now i say this as i currently and for the last 10 years have lived in a home that i own, but i will be selling our current home next year and actually renting a house for at least the next several years.  the reason is because i have a ton of equity in our primary and i would rather put that money to use in more rental units than keep in our home because its only an assett on paper. you know it doesnt matter if your home is worth 1 billion dollars on paper it only matter if you get that price when you sell it.

So my thought on paying down your mortgage is not to do it.  lets say you pay it down for the next two years, then you go to refi or take out a Heloc and all of a sudden there is a small down turn or something that the bank says your house is now worth much less than you thought.  so you paid it down actiing like a savings account but its now worth less so you cant pull out what you want.  example bought for 300k put down 10% owe 270k.  pay down to 200k of debt over two years.  you go to refi or whatever and bank says great your home is worth 280k we will give you a 85%ltv Heloc or 2nd.  ok well that means you can have a new loan or debt of 238k.  so in this example you paid down 70k in order to pull out 38k later.  now this might be extreme and likely we wont see a 20% drop in prices anytime soon but hopefully you get my point.

my thinking is to save the money in a high yeild saving account or find some other secure investment with good returns to put the extra money in while your saving for rental.  while your at it still work to find properties to buy even if you dont have the down payment.  contact owners and talk to them about buying their property, you never know you could get owner financing for very little down and get your rental sooner rather than later.

this is just my opinion and im sure to some it is wrong.  hopefully others will chime in and you can make the best decision for you!  Good luck