Thoughts re: buying investment home with cash out from residence?

7 Replies

I am considering buying my childhood home as an investment property. My dad built it in 1962, sold it about 10 years ago and the buyer has been foreclosed on. It is now with Fannie Mae and I have the opportunity to buy it cheap. I don't have much in the way of a down payment and the home could also use some repairs to make it more appealing to renters. My banker mentioned doing a cash out refinance of my residence to pay for the investment home plus needed repairs. What are the + and - of doing that?

The + would be you get the home if it works out and make it a rental.  The - would be you now have a mortgage or higher payment on your primary.  

I see you are from Garretson SD, I am originally from Sioux Falls and loved camping at Split Rock Creek back in the day!!  

Good luck

Thank you. I was thinking about the tax implications of not having mortgage interest to deduct on the rental property, etc. 

Split Rock Creek is on my running route so I make a pass through there several times a week!

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Really run the numbers on the other home to see if it's a viable rental. The rental market is harder to cash flow in that people think and buying a property correctly is 90% of that game. My suspicion is that since it was a foreclosure you have a better chance of that but be very careful in repairs. Over estimate the repair budget as many inexperienced flippers drastically under estimate them. A cash out refi is how a lot of investors get started but your home payments will either grow or return if you've already paid it off. You're also now putting your own home at risk should you be unable to pay. But again if your numbers are solid for each piece, go for it!

Thanks for the advice. Hubby is a builder so he is pretty handy and can handle most repairs. One of the bigger issues is it is 3 hours away. I could look for something closer to home, but the primary reason why I'm interested in this at all is because of the nostalgia factor. 

Having had a property that was in Glendale when I lived in Tucson, I just want to express what a big pain in the rear that rehab/rental became.  Driving back and forth was fine in the first two weeks, but over time we were not as motivated to make the drive or to do what it took to get the property handled well.  Don't get me wrong: I do have properties that I bought and have managed from a distance.  But would I choose to engage in the process of doing the work myself?  Never again!

If you're taking a mortgage out on your primary residence it will be interest that you can deduct on taxes I believe. I've been told up to 100k in home equity debt is deductible. It doesn't matter what you choose to spend that cash on. Can someone correct if that's wrong?