Author Topic: Home equity. Should I use it for investment property?  (Read 1631 times)

del84

  • 5 O'Clock Shadow
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  • Posts: 6
Home equity. Should I use it for investment property?
« on: February 04, 2016, 03:03:11 PM »
My wife and I bought a house we are living in in May of 2015. We had substantial savings and didn't go crazy with buying something too extravagant which means we now have about $748,000 in equity.

I'm quite a newbie with real-estate/finance matters and not sure if we should use the equity to buy an investment property or just try to pay off our house. My thinking is we could be better off financially in the future if we get an investment property, but not really sure if there are significant risks involved etc.

Just looking for advice, what you would do in my situation etc. Thanks very much. 

faramund

  • Bristles
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Re: Home equity. Should I use it for investment property?
« Reply #1 on: February 04, 2016, 03:25:09 PM »
You should probably look at a bit of
http://forum.mrmoneymustache.com/welcome-to-the-forum/do-you-regret-paying-off-your-mortgage-early/
(although it gets very repetitive)
and
http://forum.mrmoneymustache.com/ask-a-mustachian/house-vs-fire/

The general consensus is.
If you don't use the equity, its safer. Or if you do use equity, its more risky, but probably higher return, and some people interestingly say its more risky, with risky defined as you increase the risk that you will not have enough money in the future.

If you wade through those topics, you might see, I'm very much a risk on guy, although I'd prefer to use the equity to buy shares, but if investment property is your thing, and you think the return for that is going to be greater than the interest on your loan, I'd say thats a fine thing to do.

(If you were in Australia, I'd say, careful, I think we're currently in a housing bubble, although historically shares and real estate average about the same return, but as I'm guessing your not, I can't really comment on whether real estate is 'good' or not, wherever you are).

del84

  • 5 O'Clock Shadow
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  • Posts: 6
Re: Home equity. Should I use it for investment property?
« Reply #2 on: February 04, 2016, 03:41:07 PM »
You should probably look at a bit of
http://forum.mrmoneymustache.com/welcome-to-the-forum/do-you-regret-paying-off-your-mortgage-early/
(although it gets very repetitive)
and
http://forum.mrmoneymustache.com/ask-a-mustachian/house-vs-fire/

The general consensus is.
If you don't use the equity, its safer. Or if you do use equity, its more risky, but probably higher return, and some people interestingly say its more risky, with risky defined as you increase the risk that you will not have enough money in the future.

If you wade through those topics, you might see, I'm very much a risk on guy, although I'd prefer to use the equity to buy shares, but if investment property is your thing, and you think the return for that is going to be greater than the interest on your loan, I'd say thats a fine thing to do.

(If you were in Australia, I'd say, careful, I think we're currently in a housing bubble, although historically shares and real estate average about the same return, but as I'm guessing your not, I can't really comment on whether real estate is 'good' or not, wherever you are).

Thanks for those links, I will have a look through.

I am in Australia actually, so sounds like it might not be a good thing to do. My PPOR is in Sydney and some people have told me that Sydney values are not likely to go down in value like they would say in Brisbane. Given this i thought it might have been worth buying in Brisbane or something, assuming rents dont go down but i have no idea really.

faramund

  • Bristles
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  • Posts: 331
Re: Home equity. Should I use it for investment property?
« Reply #3 on: February 04, 2016, 05:49:04 PM »
You should probably look at a bit of
http://forum.mrmoneymustache.com/welcome-to-the-forum/do-you-regret-paying-off-your-mortgage-early/
(although it gets very repetitive)
and
http://forum.mrmoneymustache.com/ask-a-mustachian/house-vs-fire/

The general consensus is.
If you don't use the equity, its safer. Or if you do use equity, its more risky, but probably higher return, and some people interestingly say its more risky, with risky defined as you increase the risk that you will not have enough money in the future.

If you wade through those topics, you might see, I'm very much a risk on guy, although I'd prefer to use the equity to buy shares, but if investment property is your thing, and you think the return for that is going to be greater than the interest on your loan, I'd say thats a fine thing to do.

(If you were in Australia, I'd say, careful, I think we're currently in a housing bubble, although historically shares and real estate average about the same return, but as I'm guessing your not, I can't really comment on whether real estate is 'good' or not, wherever you are).

Thanks for those links, I will have a look through.

I am in Australia actually, so sounds like it might not be a good thing to do. My PPOR is in Sydney and some people have told me that Sydney values are not likely to go down in value like they would say in Brisbane. Given this i thought it might have been worth buying in Brisbane or something, assuming rents dont go down but i have no idea really.

I've stayed away from property investment, mainly because I don't want to deal with tenants/maintenance issues. As I said, history seems to show that in Australia housing investment and shares seem to give the same return - the big difference though, is that people are usually happy to have more leverage with housing investment, and that usually boosts housing's overall return.

I think one of the signs of a bubble, is when the consensus about something becomes that its good, and investing in housing, especially in Sydney and Melbourne, did seem to get very hyped until very recently.

But really, I don't know much about housing investment, I've seen a few other threads about that on this forum, so you could have a look for them. (actually, thinking about it, I've been expecting a crash in property prices since about 2004, and all that prices seem to do is go up, stagnate for a while, and then do it again, and again - so really, with property - you should probably ignore me)