Question by athos: Is it smart to use the equity from primary residence to pay cash for a rental?
With the mortgage rate in free fall, is this a good idea to use the equity from the primary residence, refinance and purchase (and pay cash for) a rental prop? Pros and cons? Thx.
Best answer:
Answer by G8R
I know several people who have lost 2 homes instead of 1 using that scenario. Not sure how much lower proces may go, but be careful with your primary residence.
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Wow. Well, having done everything but buy the rental property, I don’t know. How low of an interest rate can you get? Are properties in areas that are desirable to rent really a good buy right now? With the economy in a downturn, it IS a good idea to invest in a rental property if you can afford it. Also, are you aware of how much work goes into owning a rental property? I am, having owned several, and several at one time. It wasn’t worth it to me, or to my ex-in-laws, so you need to think twice before you do this. Do research on rental prices in the area that you are looking for, because if it is priced too high, then you won’t rent it out. Can you get enough from the rental to pay BOTH mortgages? If so, I’d say seriously consider it. Good luck, and please let us know what you decide.
Hi,
Yes it’s a good idea and one I have used and will continue to use. I won’t say what I’m worth but it is well in excess of a million dollars. When done correctly you can do quit well. If you own it outright you haven’t lost anything. You are just transfering cash from one asset to another. Once rents come in you will do better than the stock market on a good day. This is how many very wealthy people got started. I make roughly 30% return on my properties just on rent so you do the math. It is however very hard work and you earn every penny.