Should I use the equity in my primary for a rental???

General Real Estate Investing
5yFollow

Should I use the equity in my primary for a rental???

NIcholas Hamel
Member since 2019 · 187 posts · 74 votes

Hey everyone I have a question for you. My wife and I just bought our first rental property and we are considering another. We have a good amount of equity in our primary residence and are thinking about doing a cash out refinance and using our equity for another rental. Do you think this is a good idea? Thanks!!

Nick

10Reply
109 views

Most Popular Reply

Carlos M.
Investor · Lancaster, PA · Member since 2016 · 94 posts · 356 votes
5y

@NIcholas Hamel, yes!!!!! We started out 13 years ago with the $60k in home equity. Using only the equity and continuously Brrrring and redeploying it my wife and I built a little empire. 13 years later we have 91 units with a market value of 10million…. Again, all started with our home equity.

20Reply
See this reply in the discussion

50 Replies

Jump to latestLatest
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    5y

    If you can find a property that makes a good rental, at a good price, in a good market, I really don't see any downside. Equity sitting in your home makes you feel good but it is money that is earning less than the current market interest rates. Most people can do better with a decent rental property, and the fact that you have some experience already makes it more likely you will succeed. If anything, all you are doing is moving money around, fixing it from one fixed asset to another, but the other asset will pay you every month. 

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    7Reply
  • Elise Marquette
    Lender · Frisco, TX · Member since 2019 · 546 posts · 270 votes
    5y

    @NIcholas Hamel Yes, taking the cash out of your primary residence is almost always lower interest rates that if you were to financing investment property purchase.

    6Reply
  • NIcholas Hamel
    OP
    Member since 2019 · 187 posts · 74 votes
    5y

    @JD Martin. Good point. Thank you!!

    0Reply
  • NIcholas Hamel
    OP
    Member since 2019 · 187 posts · 74 votes
    5y

    @Elise Marquette. Thank you for the advice!!

    0Reply
  • Account Closed
    Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
    5y

    Depends. How stable is your job? If the rental income is zero for a year can you afford to pay the mortgage and not lose your house? Do you want to put the roof over your head at risk for a few hundred bucks a month in cash flow?

    8Reply
  • Carlos M.
    Investor · Lancaster, PA · Member since 2016 · 94 posts · 356 votes
    5y

    @NIcholas Hamel, yes!!!!! We started out 13 years ago with the $60k in home equity. Using only the equity and continuously Brrrring and redeploying it my wife and I built a little empire. 13 years later we have 91 units with a market value of 10million…. Again, all started with our home equity.

    20Reply
  • NIcholas Hamel
    OP
    Member since 2019 · 187 posts · 74 votes
    5y

    @Carlos Medina

    Wow thats amazing. Thats all i needed to hear lol. Thank you.

    0Reply
  • NIcholas Hamel
    OP
    Member since 2019 · 187 posts · 74 votes
    5y

    @Anish Tolia

    I have a job with the federal government. Thats the reason im considering it. I like to believe its pretty stable

    3Reply
  • Marco G.
    Investor · Dallas, TX · Member since 2015 · 446 posts · 197 votes
    5y

    @NIcholas Hamel

    Also consider a HELOC. With cashout you are also likely limited to 75 LTV vs 80 CLTV on HELOC. Some will go to 90 but increase in rate not worth it in my opinion. I myself started by using a HELOC.

    5Reply
  • NIcholas Hamel
    OP
    Member since 2019 · 187 posts · 74 votes
    5y

    @Marco G.

    Good point marco I appreciate it. Ill look into that

    0Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @NIcholas Hamel I would do that especially if you have the reserves built up and you feel comfortable on the cost/expense verse the income. The three things you need for it, the right numbers, the reserve account for it, and cashflow. All else will be accounted for as long as you run it like your other rental. 

    The McKernan Group4.954 Reviews
    WebsiteView Page
    0Reply
  • Troy Zimmerman
    Investor · Mount Pleasant, SC · Member since 2015 · 20 posts · 15 votes
    5y

    Remember, many investors have never been through a bear market.  True, if everything goes well, pulling equity out of your house is a great idea....until it's not.  Make sure your job is stable and you can weather 6-12 months of no income from your rental properties.  Many will disagree, but I like to always keep 40% equity in my primary residence.  

    1Reply
  • Ryan Herting
    Lender · Philadelphia, PA · Member since 2020 · 138 posts · 103 votes
    5y

    Hey @NIcholas Hamel, I would first start with creating a base strategy and goal for yourself as an investor. It's a great direction to start your investing career off with, but built a team (lenders, GCs, Realtors, attorneys...) that can support your goals. 

    It sounds like you are at the beginning of exploring the BRRRR strategy, but before moving forward on pulling out equity, refinancing your current property, and investing that equity in another rental property I would think about your finances a little further. Not to say your strategy isn't a good direction.

    As @Account Closed said, can you afford a net income of zero for a year and pay off a mortgage or loan. As a long-time investor and lender, I always recommend setting up a financial cushion as well that's relative to the size of the property you are buying (i.e. eviction costs, property repairs...)

    1Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    5y

    @NIcholas Hamel I have used my personal home equity via a HELOC many times. Literally flipped 40 properties and began with my personal house line. Back in 2001 I began with only $60k and several times throughout the years kept pushing the available higher limits and now at $421,000, which represented a 90% LTV, 15 year draw period, and a interest rate of prime minus -.25% Many have told me it was "risky" but the flips helped me build capital and now own massive doors. I have also used the equity in the same HELOC for down payments (rehab costs) to then take loans on various 4 plexes, then flipped to pay off the down payments and rehab costs. There is a lot more to my stories but this is the simple answer, YES!

    When opportunity knocks, walk through the door. Do not buy off the MLS but buy off market distressed properties. Buy a dollar for .60 cents and let everyone tell you how "risky" you are!

    5Reply
  • Allen Tracy
    Chatsworth, CA · Member since 2016 · 190 posts · 224 votes
    5y

    Like a few others have said, I would go with a HELOC instead of a cash out refi unless you'll be getting a significantly lower interest rate on your cash out refi. I have a HELOC on my primary and have purchased two duplexes with it. I am in the final stages of completing a brrrr on one of them at which point I'll be able to take that cash out refi on the rental and pay the HELOC back so I'm not being charged interest on the money while I'm looking for the next deal.

    2Reply
  • Sam M.
    Member since 2021 · 26 posts · 15 votes
    5y

    My $0.02

     If your refi rates are lower than your current rates, then do a cash out refi. You kill 2-birds.

    Now with the 2017 tax changes, the equity portion spent on anything other than your primary home is not going to be deductible so you lose some tax benefit potentially. But getting a cash out at 2.5% are reinserting it for a 12% return is an arb I would take any day.

    2Reply
  • Eric GoldmanBusiness Member
    Lender · PA · Member since 2019 · 357 posts · 190 votes
    5y

    a HELOC can be very useful!

    484-574-4878
    G2loans- Investor and Commercial Mortgages531 Reviews
    WebsiteView Page
    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Account Closed:

    Depends. How stable is your job? If the rental income is zero for a year can you afford to pay the mortgage and not lose your house? Do you want to put the roof over your head at risk for a few hundred bucks a month in cash flow?

    I am with you 100% on this one Anish..  downside risk has to be considered so really depends on what and where you guy.

    Buy cheapo C/D class  then no way in my mind.. buy something very nice upscale with very little chance of tenant and market drama then maybe.. 

    There was a post a few years back that got like 100  Atta boys from the BP audience with no concept of the risk the folks were taking.

    W 2 folks  nice run up in equity in LA..  pull 80 or 90% heloc and then admittedly buy 8 D class homes in Memphis..  so I get on and well like you I was the contrarian in the thread but I ended up with I think 50 up votes by the time we talked it through and you suss out the uber risk these folks took..  they never did post again.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    4Reply
  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    5y
    Originally posted by @Carlos M.:

    @NIcholas Hamel, yes!!!!! We started out 13 years ago with the $60k in home equity. Using only the equity and continuously Brrrring and redeploying it my wife and I built a little empire. 13 years later we have 91 units with a market value of 10million…. Again, all started with our home equity.

    Please provide the addresses of the 91 units worth $10,000,000

    Not that I don't believe you but but . . .

    1Reply
  • Brendan Miller
    Rental Property Investor · Gilbert, AZ · Member since 2020 · 210 posts · 163 votes
    5y

    @NIcholas Hamel I'd look at both options of either a cashout refi or a HELOC. With the cashout refi you'll pay lender closing costs which could be $5K+ depending on the loan amount, but with the HELOC there shouldn't be any costs if you find the right HELOC lender. The interest rate will be lower with the cashout refi than the HELOC though. You can get a HELOC up to 90% LTV on a primary residence with some lenders (PenFed Credit Union for example), but the rate increases as the LTV % increases. I would run numbers on both options and then evaluate which option is best for you. As for whether you should use equity to purchase more property, I would just look at the opportunity cost of that money and the potential deal you're buying. If you have a 3-4% loan on the equity, but can make 8%+ CoC return from cash flow plus all of the other benefits of real estate (appreciation, tax advantages, loan paydown), then I'd say go for it. If you're buying it just to say you own another property but it doesn't cashflow, then I'd probably say it's not a great idea. Congrats on buying your first rental property, that's a huge first step!

    0Reply
  • Carlos M.
    Investor · Lancaster, PA · Member since 2016 · 94 posts · 356 votes
    5y

    it’s our entire portfolio silly. We have stuff selling for $200-$250 per door in our backyard. Lancaster PA. When we started the cap rate was 10-12. Over the years it has compressed down to 7 for a building need lots of work. I know someone who is looking at an 8 unit for $700k and they are going to gut it! We have renovated stuff selling for a 4 cap. A 3 unit just sold for $900k here. It cracks me up that instead of trying to net work and connect to ask questions on my market and get more details and ideas , you just simply deny the possibility. I have nothing to gain from my reply. I don’t sell any courses I’m just here to help motivate people with MY reality. Clearly it’s not your reality. But I assure it’s possible and my reality . I do how ever give back and mentor people for free. I currently mentor 7 people. As a matter of fact I have one kid who is 26 years old and has 8 units. He is crushing it. What he saw was us crushing it. He asked , can you help me get started and we did. He never asked me to prove it to him. Side note , If you were closer to me I would invite you my next business mixer we are hosting on our yacht. Cheers, best of luck in your investment career.

    10Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y
    Originally posted by @Marco G.:

    @NIcholas Hamel

    Also consider a HELOC. With cashout you are also likely limited to 75 LTV vs 80 CLTV on HELOC. Some will go to 90 but increase in rate not worth it in my opinion. I myself started by using a HELOC.

    I 2nd the heloc idea.

    That's what we have and don't feel pressured to hurt up and settle for a mediocre deal.  Borrowed cash can make one a motivated buyer while a line of credit still keeps you cool and selective. 

    2Reply
  • Chris Pasternak
    Real Estate Broker · Pueblo, CO · Member since 2013 · 366 posts · 303 votes
    5y

    No it's not a good idea because you're not accounting for risk.

    0Reply
  • Chris Szepessy
    Catskill, NY · Member since 2018 · 636 posts · 668 votes
    5y

    I'm in the same predicament. Between the market and being several years into a 15 year note, we have a bunch of equity as well. I don't personally think I could put my primary home at risk in order to buy more rentals, though. However, my two rentals also have a ton of equity and I had considered refinancing those, but we only owe another 4 and 7 years on them, and having paid off properties sounds pretty good. 

    0Reply
  • Joel Florian
    Member since 2019 · 111 posts · 130 votes
    5y

    Absolutely  pull equity out of your home, but only for good deal on real estate.  

    Several have mentioned a HELOC. I have done both. My HELOC took about 3 weeks and my credit union did not charge for the appraisal or any other fees. A cash-out refinance for a rental property took 4 months and cost about $7k (rolled into the loan, of course) Interest rate is slighly higher on the HELOC, but I don't pay any interest until I use the money. You might shop around and compare what you can get locally. But you would be smart to start on it now so you have cash to invest when a good deal shows up. The best deals aren't going to wait even 3 weeks and certainly not 4 months.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free