Author Topic: Cash out Equity in a rental...good idea?  (Read 1064 times)

SDH

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Cash out Equity in a rental...good idea?
« on: September 24, 2017, 09:25:29 PM »
Hello all....I'm curious as to what others would do!  We have a property that we paid 125K for, owe ~85K and its worth ~ 180K.  Would you refi and take the equity out to add to your emergency fund and maybe even invest some?   Thanks :)

Kroaler

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Re: Cash out Equity in a rental...good idea?
« Reply #1 on: September 26, 2017, 11:53:39 AM »
No.     Not unless you have a specific need for a larger emergency fund (to hedge an unreliable work situation). Or have an immediate plan to reinvest the funds from the refi.

Other wise it sounds like a good way to get over leveraged on the property.  I personally think the market is a bit hot and going to cool off till 1st qtr next year.

However, I think this question would have been better asked in the real estate sub forum.

JayKay

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Re: Cash out Equity in a rental...good idea?
« Reply #2 on: September 27, 2017, 11:29:03 AM »
I'm debating about doing this for one of my rentals.  My initial strategy was to do a BRRR since I was adding equity after significant fixups, but now I'm not sure if leveraging it would be the best.

The commonly-held wisdom I've heard is that a mortgaged property is ok as long as you have a plan to pay it off before FIRE.  Following this, you could pull the money out, put it in a more liquid vehicle like an index fund and start collecting the cashflow into your fund.  The balance of your fund goes up and your mortgage balance goes down.  Once your index fund has a bigger balance than your mortgage balance you can technically FIRE by pulling the money out and pay the mortgage off.  Or, you can keep the mortgage and keep the fund and can technically say "I'm debt free on this property, maybe, cross my fingers!" and let it ride.

But, this whole "payoff" strategy presupposes that you only have rentals.  If you have other cashflowing things in your portfolio that aren't debt based, like notes, that helps stabilize your income against things like vacancy, but also further complicates things.  The more moving parts in your portfolio you have, the harder it'll be to even say with certainty that you can FIRE.

HTH