Buying a Rental Property
Thursday Oct 28th, 2021
How to Use Your Equity to Buy a Rental Property
If want to buy a rental property using your equity, you don't need to sell your home. You can tap the equity using one of these three approaches without selling:
- Refinance your home so that you have a new mortgage and get the equity back in cash.
- Get a second mortgage, which is an additional mortgage on top of your current first mortgage.
- Get a home equity line of credit (called a HELOC).
Whichever approach you choose, you'll want to make sure that you'll make more money with the investment property than you'll pay in loan interest and fees. To make that analysis, you'll need to know the costs of each equity option, and the returns of any potential investment you're considering.
A lender can help you understand the pros and cons of the different equity options. I can help with understanding the returns you'll get on different rental properties. You also can do more research about rental property expenses here.
Ideally, you'd be able to buy a rental property outright, using cash from your equity. But if you can't pay all-cash, then you'll also need to add new mortgage expenses for the rental, too.
Why would you use your equity to buy a rental? You probably have a lot more equity today than you did a year ago, due to steeply rising home values. If prices were to drop, that equity would disappear. Instead, you can tap that windfall of equity now, while also taking advantage of still-historically low interest rates.