Advice requested on how best to fund next purchase

2 Replies

I need a little help thinking through a financing question.  I have one primary residence (5 years) and one rental property (2 years) in CA and I want to move into a new primary residence while renting out my current primary residence.  My rental has gained about $80K in equity in the two years I've owned it.  With no vacancy or maintenance, I cash flow a little over $200/month.  To help fund my next purchase, I was thinking of doing a cash-out refinance for around $40K on my rental and combining it with my savings, giving me nearly $100K to put down on a primary home.  However, that would drop my "no vacancy or maintenance" cash flow to just about $0.  I also have the option of taking a $50K loan from my 401K.  Which route would you choose?  Is there another option I am not thinking of?  Your advice is greatly appreciated!

I’m fairly new here, but I’ve had a rental for a couple years that is in great shape and newer. (2003 build). There is no way you can refinance and hope for no vacancy AND no repairs. You’ll be feeding it until you get frustrated and sell.

I really think even hoping for no repairs and no vacancies to make $200/mo is too risky unless you have 6 months of reserves set aside to cushion this.

If you need $100k to move forward, I’d just keep saving.


You are truly cash flow negative as all properties have maintenance. Maybe not now, but in the future, which means your deferring your maintenance. 

Since we don't know your debt side of the equation, you are allowed to refinance investment properties (cash out) to 75% value. Assuming that gives you 40k then absolutely do that. Don't forget the tax benefit of owning the extra property. ( more depreciation)

Borrowing from your 401k (if it's allowed by your employer) you can borrow up to 50k or 1/2 the value, whichever is less. You will have to pay it back within 5 years, or you will be hit with a 10% penalty. So carefully weigh the benefits of this 3rd property vs your 401k benefits which might include employee match, stock market returns vs your historical real estate return.

Make sure you really know your numbers. That means take into consideration vacancies, maintenance, property taxes etc to make sure your not negatively geared ( losing money each month on a leveraged asset) hoping appreciation will save you down the road

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