No mortgage on primary residence, should I cash out refi?

Question

Being that my primary place of residence is paid off within no current mortgage. Do you think it would be best to cash out refi and reinvest into investment property? Or use the money for fix and flips? Appreciate any advice.

FYI I am completely new to investing aside from my current home which was purchased over 20 years ago I have never purchased any other real estate..

Oleg Shalumov · Answer

@Izick Khanimov Welcome to BP.

I would recommend to educate yourself on each type of investment. For example, Fix & Flip is for active investment (if you will be doing the work) and Investment is more of a passive.

If you are interested in passive investment, would you like to focus on turnkey property? Small residential (1-4 units)? or commercial (5+ units)?

For your home property, I would recommend to look into Heloc instead of refinancing as it cost less.

Kyle J. · Answer

Some good advice from the posters above.  I've done both the cash out refi and the HELOC route on paid off properties, so both can be good strategies for acquiring properties.  However, I would echo what was mentioned above and make sure you determine what you want to use the money for first.

Owning rentals and flipping properties are two totally different things.  One is more passive investing and the latter is more of a job.  Nothing wrong with either, but you have to decide what you're looking for and what's right for you.

John Fortes · Answer

Congrats on owning your home outright.

You can take a HELOC against it so you are paying back what you are going to use and enjoy the passive income and there are ways to do that. Just get some education on each before you decide which strategy or way you are looking to go.

• BRRRR strategy would work but make sure you buy right.
• Fix and flips, but you will be always be looking for the next deal and most equate this to being more of a job than anything but others love the thrill and the chase of the next deal. Depends on what type you are.
• Partner up with others on a bigger opportunity (buy right, improve the property, stabilize, refinance out original investment).
• Passively invest with a syndication. More of a hands off approach as long as you vet out the syndicator and opportunity they have. Educate on this and learn more about how it may fit or may not fit what you are trying to achieve passively.

There are other ways but having a HELOC ready to go for these and using it wisely in investments is a good tool to build up your portfolio. Just as long as your using it to build and add to your wealth. But if your house is paid off, could there be a chance you save well and already have a nice savings and considering using the equity in your home is to scale up faster is what I'm assuming. Good luck to you going forward. Feel free to reach out if I can help in any way.

James Wise · Answer

More or less anyone can buy a rental property. You buy in a decent area & turn it over to a Property Manager there isn't much for you to do. Flipping properties is a totally different animal. That is an active business that is going to require a ton of skill, knowledge & expertise to be successful at. The big players in each market are spending thousands of dollars every month trying to get to motivated sellers before you.

So before you can get an answer to this question you'll need to figure out what you want to do. Do you want to invest money passively or start a full fledged business?

Jerry Padilla · Answer

@Izick Khanimov

With conventional financing you can cash out refinance on a primary residence at an LTV of 75%.

An option you can can do is the BRRR method. With this method you can obtain rental properties that need some work at an under value price. You can then fix them up to increase the value of the property and cash out to hopefully get most of your money back or all of it, and keep purchasing more property with this method and little out of pocket.

Nicholas Covington · Answer

@Izick Khanimov You could also have the option to do a cash out on the property and then find someone that will give you a Line of Credit based on your liquid cash to use towards funding fix and flips.

There are lenders that with experience, credit, and liquidity can give you 5x your assets for a line of credit for fixing.

David Steinbok · Answer

Yes

Matthew Drouin · Answer

Izick, what's more important than what you invest in, it's why?  And why real estate?  Are you trying to fund a child's college education?  Trying to diversify your investment portfolio from stocks, bonds, and mutual funds?  I have a lot of questions here.  Why haven't you invested in real estate for 20 years?  Usually people who pay off their home are usually low debt, very risk averse investors.

It is very important to uncover these questions because the answer will reveal what your investment psychology is.  Your investment psychology is more important than what you choose to invest in.  Read Benjamin Graham's The Intelligent Investor.  He talks about the importance of becoming self aware before putting your money at risk.  If you realize that you take a serious emotional toll if your portfolio value goes up and down, you need to asset allocate more to less volatile instruments like bonds.  If you are not phased by the Bi Polar sentiments of the market and ride upswings and market drops without breaking a sweat, then you can allocate more of your portfolio to stock based mutual funds.  The reason why all of this is important is because Graham knew that if you were very risk averse and had a lot of exposure to volatile stocks, that investor would almost always buy high and sell low.

How does this apply to real estate?  There are hundreds of ways to invest in real estate, just like there are hundreds of ways to invest in marketable securities.  So you need to discover what investment vehicle is best and your psychological  profile in real estate.  You can discover this by networking with active investors who engage in buy and hold (this can contain multifamily, office, retail, self storage, manufactured housing communities, single family, etc.), buy renovate and flip, note investing, hard money lending, WHATEVER.  Also by educating your self through books and pod casts as well.  And carefully consider what you want to do and then stick with drilling in deeper on that subject matter.

No mortgage on primary residence, should I cash out refi?

Most Popular Reply