Homeowner · Virginia Beach, VA · Member since 2015 · 3 posts · 0 votes
So I had a question about refinancing your property to get the equity that you had in it. I was speaking with a colleague today, and he told me how he had purchased his house for 150k, and he had it appraised and it was worth 200k now. So he was going to refinance and take the 50k worth of equity he had accrued and use that 50k to purchase rental properties.
He said that with the refinancing and having a better interest rate that his payments wouldn’t change so month to month on his current house would remain the same mortgage payment.
My question to everyone is, is that a wise investment strategy in the long run, because it seems to work out in the short term with being able to purchase rental properties that you would possibly generate monthly income as well as equity from those properties. Any thoughts and comments would be appreciated!!!! Thanks in advance
Honestly everyone has a VERY different opinion on this subject.
A lot of people will argue that now you have two houses for the price of one. That your next house is not only "paying for itself" but also paying the cash flow that the other house wouldn't have had. So win/win!
That being said we don't refinance. I am a leverage girl! I put as little down in the deal as humanly possible. Therefore if I raided the cash flow when it had cash flow than I would have problems down the road. Therefore I buy them as low as possible and leave the cash flow in the houses!
The question is really how much leverage should I use. How to obtain the leverage is a secondary question.
If your cost of money is 4% and you can make 7%+ on your investment then I am willing to use leverage. Some people would not be willing to use it. It is up to you.