Question by Sean L: mortgage refinancing to increase my investment portfolio?
I am in mid twenties and have a house that is fully paid up.
The rental income is around 5%/annum.
I read a few articles about stocks, and as we all know, this is the best time to invest in stocks.
As the return is always higher for stock and they are cheap nowadays.
Should I sell my house and go for it? Or refinance the house?
Or stay the same??
And of course, I am still optimistic about the stocks in long term.
Please advise.
Best answer:
Answer by ~Laura and Scott
If you take a look at the history of gains in the stock market and the history of gains in the real estate, you will be far better to pull money out and keep buying rental properties. At your early age, get about 10 rentals and in 20 years, you will never have to work again with money coming in every month, forever! You could never do that in the stock market!
Know better? Leave your own answer in the comments!
Yes, buy low, sell high.
The problem is, you don’t know how long the market will be depressed for both stocks and real estate. You don’t even know for sure that your rental property will stay fully leased.
If you keep the rental property and refinance, how much would the bank lend you? what interest rate? what would you do if the tenants suddenly broke their lease?
If you sell the rental property you won’t have the risk of being overextended on a loan, but isn’t real estate depressed in your area? There are friction costs in selling as real estate agents don’t work for free? As a sale, how much will you owe in income tax? (Remember, when you sell, any gain from depreciation is taxed at your ordinary income tax rates.)
You are gambling that the stock market would recover faster and higher than the real estate market would.
Laura and Scott are totally wrong. Over the long term stocks have offered the best long term results. Heck just look outside. This whole mess we’re in right now is a direct cause of the collapse in real estate prices. Any investor should be well diversified. Stocks, bonds, real estate, etc. Sounds to me like you have plenty of your savings toed up in real estate. It would me sense to take some (not too much) of your equity out of your real estate and put some of it in stocks, especially at your young age. Good luck!
never ever sell property. you can use it so many ways.
if you want to invest in the stock market, i would take out an home equity line of credit and buy the stock with that, and if you have chosen the right stock and are making money, you can pay back the HELOC from that.
if you dont make money, and loose , at least you still have your house.
or take your cash flow from the rents received, save it until you have enough to invest.
With the way the housing market is right now, I would suggest you hang onto the house until you can get a better price for selling it. If anything your best option is refinance and use that money to diversify your portfolio of security holdings. Considering how volatile the the stock market is nowadays, I wouldn’t blame you for staying as is.
Selling in this market will not give you the return you would want from your real estate investment. Depending on your credit worthiness you could pull out some equity, just ensure that your rental income and expenses formulas line up the way you need them to — do you need cash flow from this rental, or do you need to show a paper loss? It is the best time to be purchasing real estate, and although the current situation seems bleak, real estate really is a good investment especially for the long term. Sounds to me like you would like the excitement of the stock market and investments. So maybe use part of that equity for more real estate and part of it to start a portfolio. Just remember to take into account the tax burden of both when deciding how you want to split the money up.