Rental Property Investor · Chicago, IL · Member since 2017 · 77 posts · 25 votes
I have an opportunity to pay off my mortgage by the end of the calendar year. At the same time I have been waiting for this opportunity to make my first real estate investment. I figure these are my two choices:
1. pay off my own mortgage and increase my current heloc to make my first REI
2. Pay off 90% of my current mortgage leaving 10% of available cash for REI
3. Unless there are other options im not aware of
I shouldnt be laughing but is this a first world problem?
Investor · Albuquerque, NM · Member since 2017 · 133 posts · 83 votes
8y
@Account Closed
#3 - other options. I have a totally different approach for you to consider - refi your house, pull out 75%, and use that for your next REI purchase(s). This may be counter-intuitive to how most of us were raised (pay off your mortgage as soon as possible) but it actually makes sense. Think about this:
- Interest rates are still low, you can probably find a refi around 3.75%
- leaving 25% in equity will avoid mortgage insurance
- 3.75% on an owner-occupied primary home mortgage is less interest than you will pay for a HELOC
- you'll now have a bunch of cash available for multiple REI's, for rehabs, etc
- leaving equity in your house is not earning you money - at the minimum, you could even park it in mutual funds and make 7-8%. Less 3.75-4% on the loan earns you 3-4%. REI can net you even more.
Real Estate Broker · Chicago, IL · Member since 2015 · 102 posts · 53 votes
8y
If you plan on flipping then a line of credit would be helpful. But I'd still probably cash out refinance, find flip deals that are financeable, purchase them with conventional 20% down loans and then use the rest of the money for renovations. Or you can always carry a line of credit and find a hard money lender that will finance the purchase and you use your line of credit for the repairs. When you have a paid off house like you are about to, your options are awesome. A lot of first time flippers and investors have a hard time getting their foot in the door because they have a hard time coming up with that initial investment. You'll already have one foot in the door.