Keeping existing house we been living in 20 years and buying new

18 Replies

What would be the best way to keep our existing house with good equity and finance a new house? 401K loan? Equity from current house? How much should we pull out if we refinance our 1st mortgage? We have never owned new, is this advisable in the round rock market or should we look at a seasoned home ? We are also interested in a pool so the existing market is somewhat smaller than normal.

We would like to rent out our current home and upgrade to a nicer / larger home if possible.

Have first hand experience with this. Happy to chat directly but too much to type here. Send me a PM with your number and we can discuss. 

James, Interesting thread! 

We moved in December to a brand new KB home and turned ours into a rental. We were able to take out a regular mortgage...or so we thought until two days before closing when KBHS (KBs mortgage company) pulled a last-minute change that "moved the goal post" on us. So we now have a private loan that we are going to refinance into a regular mortgage. 

Our cash-flow from the previous house/now a rental is enough to cover the increase in our mortgage, so it was a cash-neutral move, but now we have another house in our portfolio gaining value. 

Pull out as much dead equity as possible or all you will be doing is buying your cash flow at a very high cost. $140K of equity is worth about $1166/month. If you leave it in the property the property itself will likely be generating nothing and not really be worth holding as a investment.

If it will not cash flow with maximum leverage you would be farther ahead selling and investing in something that does.

@James Freeman unless the property makes sense after pulling out equity you are probably better off selling. If you're lived in the property for more than 2 years all of that profit will be tax free.

You could sell that, buy a rental and then also buy the new house.

@Thomas S. Newbie here - can you explain what you mean by "pull out as much dead equity as possible or all you will be doing is buying your cash flow at a very high cost. $140K of equity is worth about $1166/month." Specifically, what counts as "dead equity" and is $1166/month the equivalent of a conventional loan on $140K? Thank you! 

Dead equity is any and all equity in a income property. It has a opportunity value of approximately 10% return for investors and that is the $1166/month I noted. $833/month for every 100K in equity. For your money/equity to earn it's keep you deduct $833 directly off the top of your monthly rental income before any other expenses for every 100K of equity in your property. If you do not then all your money is earning is the equilivant of the present mortgage interest rates. When investors pay down a mortgage and claim they are increasing cash flow what they mean is they are buying cash flow with their own money. The property itself is not producing any additional cash flow. To actually increase cash flow you must either reduce expenses or increase rent.

Highly conservative investors will park their money in real estate for safe keeping when they have no use for it such as growth of investments. Their only risk is losing their cash when markets drop. That would be a guaranteed lose of some amount. The risk a leveraged investor faces is the possibility of losing the property (worse case) and what small amount of equity they do have in that property.

There is, in my opinion, a guarantee of losing equity but only a risk of actually losing a property, when leveraged, assuming a investor is well prepared. 

It is a investors choice however most on here are tired of hearing it.

What does your written investment plan say in regard to your plan? Having 1 rental does not make you an investor. A good investor has a plan..... 

 Why you are investing, with what, how much you are expecting back and when + more...

Right now I personally would rip all of the equity out of the property, wait for a housing drop and buy 2-3 properties with the money. (my opinion)

100k in the bank is worth a lot more than a rental with cash flow assuming vacancies/repairs do not eat that up.

Housing values have to correct eventually. I am confident it will be by 2020. Not so long to wait! I am liquidating all of my under performing properties at the moment and stocking cash. Strategic patience is still considered investing...

https://www.forbes.com/pictures/hhej45j/most-overv...

2 years old but things are no better now

https://www.forbes.com/sites/ingowinzer/2018/04/18..

indicates a high house price to income ratio-not good

I am sure there are different opinions on this forum so please share them. 

@James Freeman Assuming you don't need the equity to close on your next property, your money would likely be better served elsewhere. You can be making a 10% return on your equity each year, in this case around $16k/year or $1,300/month NET after ALL expenses including PITI, management fees, and a Capex/repair fund. If you're not able to hit those numbers (or come close), then I would encourage pulling out your cash and hunting for deals. Because you bought 20 years ago its possible your monthly payments are low enough to provide you with that kind of cash flow, so you will have to run the numbers for your situation.

KB had a bad rep for a long time, but they have been working hard to deliver a better product for the past several years. Be careful thought they will get you with the upgrades!

A couple other thoughts after reading subsequent responses:

-First, keep in mind that selling isn't the only way to pull out dead equity. A HELOC is a good way to do it as well. If it's currently your primary residence you might consider a HELOC now (b/c its easier to get on a primary than an investment property), then after you move you still have access to it if you need/want to use it to invest. True, it will come at a higher interest rate than cash in the bank, but to me its worth it because of the options it gives you.

- Second @Zachary Barton is exactly right. My previous house (now rental)--built in 2001-- is a KB home and I thought I would never buy another KB home because of the sub-par quality. I took a hard look at their newer homes including walking through several in various stages of build with my GC that I've used on investment projects and I kept a close I on the quality as it was being built. I will have to say I'm rather pleased with the product (although we are less than a year in.) @Zachary Barton is also right--they make their money on upgrade. What we did is this: only upgrade things you can't upgrade later. We can replace flooring, countertops, etc for far less than they charged, but its hard (i.e. impossible) to add 9-foot ceilings after the house is built. (-:

One last thing: I will have to check to be sure I'm remembering correctly, but I think KB gives something for "referrals" Will you let me refer you in case you go with them?