Refinancing Home to Invest

[rkbabang]

In my area (northern Virginia) the monthly cost of owning vs. renting is pretty similar.  If you buy a $500k house, the P&I might be around $2k plus $400 or so for escrows, and renting the same house would be the same $2400/mo.  The interest and property tax are deductible so you might be a little ahead as an owner each month, the obvious problem being the $100k down payment you have to come up with.

 

Buying and renting in my area is similar as well if you look at it from the stand point of a first time home buyer,  although I still think it is cheaper to own all else being equal (house quality, location, etc).  But if you look at it from the standpoint of someone like myself that has built up equity in his 2 previous homes and put a large (about 50%) down payment on this current home.  What you get is home ownership being much cheaper.  Of course if I had spent those 18 years renting I'd be paying the higher rents now.  And if renting is always about equal to buying for the first time, then I would never have gotten ahead, with the exception of the initial down payment.  But my initial down payment on my first home when I was 24years old was 5% on a $135K home.  Not a substantial sum of money even in back 1996 and I could have easily spent that money on a car or lost all of it in the tech crash (I wasn't into value investing back then) giving me no advantage to renting at all.

 

Of all the crazy things I did with my money back then (things I bought and invested in), looking back on it now, buying a home at 24 years old when everyone around me from my friends to my parents told me I should wait is one of the few things I don't regret.

 

[tiddman]

I bought my first property (a condo) with $4500 down (5%) on an FHA loan.  This seems like an amount that is achievable by almost anyone with a steady job.

 

I didn't know it then but I was buying at the peak of the market and within 18 months it had fallen 10-15% in value.  I was under water but really only by a few grand and I liked it well enough to stay for 3 years.  I later rented it out and ended up owning it for almost 10 years, when it increased in value by 50% almost overnight and I sold it, and used the proceeds for a down payment for the house I live in now.  With that purchase I had better timing and it increased in value by 50% within a few years even though I thought I was paying a lot.  So my experience was turning $4500 into something more than 50x that without being particularly brilliant or adventurous but by just being willing to be patient.

 

My lessons from this are 1) buy a house first and foremost to live in, and 2) plan on holding it for at least a full market cycle or two (10 years minimum), and 3) try to make sure that you aren't buying at a totally irrational peak.

 

The same analysis can be used for rental properties, buying a rental property with 20% down is tricky because the interest expense is too high.  But if you can get the LTV down to 50 or 60 somehow, and plan on sitting on it for at least 10 years, you really can't go wrong IMHO.

[Uccmal]

Sorry if there is already a thread on this.  I did a quick search and didn't see anything. 

 

Looking at the spread between AT&T or something like that, and 15yr fixed rate mortgages, do you think it would be worthwhile to take out a mortgage on a fully paid off house that has a pretty solid, stable value, and just sticking the money in AT&T.  Would a bank let you do this, if it was for like 20% of the houses value? 

 

Thanks a lot.

 

P.S. This is probably the market top sign everyone is looking for :)

 

 

Uhm, Why would you do this?  If your still working put the money you would have put into the house into investments, or dare I say, spend it on frivolous vacations and a beach front property

 

 

Now if you are intent on proceeding please contact Crip.  I have known him for 10 years and will vouch for him.  Of course someone will have to vouch for me vouching for Crip....

[andron]

No. It's a bad idea. You own the house free and clear. You would be taking a chance for no good reason.