Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes
With interest rates so low I am debating about re-fi'ing our home mortgage and buying some investment properties with the money. For simplicity let's just say the home mortgage is paid off. Let's say house is worth $750k. I believe I can get a 15 year re-fi mortgage at, or just under, 3%. My income has me in phaseout for deductions so I do not get full value for tax deduction but still some benefit. Am I being too conservative to just sit on a paid off house? I could easily get $600k out of the home to invest and, most likely, have no problem paying the mortgage with the rents. I would love some insight/encouragement from you experts. What would you do?
Investor · Charlotte, NC · Member since 2015 · 183 posts · 146 votes
10y
"Your home is not an asset". - RichDad PoorDad, Unfair Advantage, etc, etc. If you haven't read any Robert Kiyosaki or it's been a long time then re-read. If you have $600k in equity, you should get it working for you in cashflowing properties. As often said by financial strategist, Robert Gray, "Do the math and the math will tell you what to do."
All the best!
Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
10y
@John P. It depends. What is your risk threshold? If it is paid off, you are much closer than most to not needing to work. Many investors want their primary free and clear so that debt is not on their shoulders. @Tommy F. is only mostly right. Your home is not an asset, but it is a savings account. You can withdraw money from it and buy assets, but then you have a payment again.
How comfortable are you with the idea of paying on your home again? If that isn't a big deal to you then leverage it to whatever extent you are comfortable with and buy some assets. This kind of decision is all about your own investment goals.
South Plainfield, NJ · Member since 2015 · 72 posts · 23 votes
10y
Are you doing a refi mainly to take advantage of interest rates or to take money out for investments.
It definitely depends on your risk threshold. I was in your shoes with slightly different numbers. I took a HELOC not exceeding 40% of value (again my risk threshold) and used that for down pay. So far it's working out better for me
Investor · Charlotte, NC · Member since 2015 · 183 posts · 146 votes
10y
I agree with Varma and Bryan, investor psychology, risk tolerance, and what allows you to sleep at night is vitally important. What's good for me may not be good for you. I invite you listen to an episode of Money for the Rest of Us - episode 44 "Should you pay off your mortgage?" It takes 5 minutes or so to get into the meat of it. It may be 30-40 min in total. Listen a few times at the example.
You are presently earning 3% return on your cash (actually saving 3% in mortgage payments). You could pull it out and invest in real estate with a 10%, 20%, 30% or greater return on your cash.
Investor · Maryville, IL · Member since 2016 · 129 posts · 81 votes
10y
hardly any new comment to make except to the amen from all above...it is a personal decision, and the numbers will tell you what you should do...do not let emotions cloud your judgment either way. (e.g. do not feel compelled to invest just because you see the excitement on these boards about how people are using THEIR money, and do not be afraid to take a calculated (minimal) risk with your own just because you want to avoid any risk.
set limits (expectations), make a plan, work your plan and carry on.
Personally when I read that there was 750K lying dead and buried in a home I wept a tear. Money is a very emotional topic for me and I find it difficult to not feel sad for it. RIP.
Investor · Vacaville, CA · Member since 2016 · 433 posts · 249 votes
10y
I appreciate all the thoughts. Thank you all. I don't want to do anything stupid and I guess I won't know if it's stupid until some years in the future.
I have Money For the Rest of Us episode 44 cued up and ready to play (Thank you @Tommy F.)
@Thomas S. the above made me laugh. Thank you. :) I hear ya. That's my internal debate I guess.
Investor · Charlotte, NC · Member since 2015 · 183 posts · 146 votes
10y
John
Hopefully you had a chance to listen to the podcast episode about paying off mortgage at Money for the Rest if Us. It takes some repeat listening to catch the lesson even get pencil and paper or MS Excel to follow his numbers to study the concept. Another learning option for you to consider, go to Youtube, search Ric Edelman 11 reasons to carry a big long mortgage.
Good luck.
Tommy