School me on "Equity Loans"

[97guns]

Nope, your my top student

[greenskeeper]

Understood. Originally, I had about that amount of equity myself. I did a cash out refi and used the $150K to pay cash for a rental house. The way it worked out, my rental income made my principal house payment on the new note! (Not including my property taxes).

I will have to research and see exactly how costs would fall with this approach.

Then I am assuming you took the money you would have put towards your mortgage now that the rental is covering that and reinvested or saved it?

[TexasHusker]

I will have to research and see exactly how costs would fall with this approach.

Then I am assuming you took the money you would have put towards your mortgage now that the rental is covering that and reinvested or saved it?

Nahhh....I bought one of these:

[TexasHusker]

...and there are times when I regret it, but every morning when I jump in and hear that engine growl, I fall in love all over again.

[rennigade]

Nahhh....I bought one of these:

Before you drive anywhere make sure you have the contact info for the nearest towing company. You're going to know them all before you know it.

[Fishindude77]

If you have a solid game plan for your investment property, good credit and some down payment money, you could get a loan for the investment property without using home equity.

[TexasHusker]

If you have a solid game plan for your investment property, good credit and some down payment money, you could get a loan for the investment property without using home equity.

Usually 20% down. If you're trying to get rich, I'm not a fan of paying cash for rentals - while you are earning income on it, your equity isn't working for you in other money making projects.

Real estate is a ticket to wealth due to the ability to leverage.

[Fishindude77]

If you're trying to get rich, I'm not a fan of paying cash for rentals - while you are earning income on it, your equity isn't working for you in other money making projects.

Real estate is a ticket to wealth due to the ability to leverage.

We've debated this basic philosophy on other threads.
You like to borrow, use other peoples money and pay interest. I prefer using my own money and not pay all that interest to the bank.

[TexasHusker]

We've debated this basic philosophy on other threads.
You like to borrow, use other peoples money and pay interest. I prefer using my own money and not pay all that interest to the bank.

You get rich a lot slower that way...

[Fishindude77]

You get rich a lot slower that way...

Your not rich if your constantly in debt, just using other peoples money to support a lifestyle.

[TexasHusker]

Your not rich if your constantly in debt, just using other peoples money to support a lifestyle.

Then most rich people aren't rich.

[~bs]

Usually 20% down. If you're trying to get rich, I'm not a fan of paying cash for rentals - while you are earning income on it, your equity isn't working for you in other money making projects.

Real estate is a ticket to wealth due to the ability to leverage.

I agree that utilizing leverage where you can is a quicker ticket to getting rich, but it's also riskier, and a quicker ticket to the poorhouse as well.

I know people that used home equity to invest in properties around the time of the 2008 crash. They ended up losing money on the rentals, and were forced to continue working past age 65 because now their primary residence has an equity loan they need to pay off.

It's kind of like trading stocks on margin. Yes it can amplify your return, but if things go south, it can leave you in the poor house too.

[TexasHusker]

I agree that utilizing leverage where you can is a quicker ticket to getting rich, but it's also riskier, and a quicker ticket to the poorhouse as well.

I know people that used home equity to invest in properties around the time of the 2008 crash. They ended up losing money on the rentals, and were forced to continue working past age 65 because now their primary residence has an equity loan they need to pay off.

It's kind of like trading stocks on margin. Yes it can amplify your return, but if things go south, it can leave you in the poor house too.

That is partially correct. The difference however between leverage and margin is that when you get a margin call, you either come up with extra cash or they sell your holdings.

In real estate you can easily ride out a downturn if your properties are earning good income.

I overpaid for a house in around 2007 by about $50K - the market crashed that much - but it's been paying me $20K a year net, so I have easily overcome the $50K "loss" with about $165K in income. And of course by now, the value is near what it originally was - I may still be underwater on it a little.

But it's still turned out to be a fantastic investment even after a 25% decline in value.

[~bs]

^

Yeah, it is an imperfect analogy. It does depend on if your situation is one where you can "ride out" the crash, similarly if you can ride out the stock market crash without having to sell the stock. The people that couldn't or wouldn't were in a situation where the housing prices and economy were weak enough where they couldn't rent out the property to pay the mortgage payments and they were severely underwater on the rentals to the point they felt it better to walk away than to throw their own money into an upside down property. I guess the part that is most comparable to the margin call is the recurring mortgage payment, utilities, and maintenance required on the house.

[TexasHusker]

^

Yeah, it is an imperfect analogy. It does depend on if your situation is one where you can "ride out" the crash, similarly if you can ride out the stock market crash without having to sell the stock. The people that couldn't or wouldn't were in a situation where the housing prices and economy were weak enough where they couldn't rent out the property to pay the mortgage payments and they were severely underwater on the rentals to the point they felt it better to walk away than to throw their own money into an upside down property. I guess the part that is most comparable to the margin call is the recurring mortgage payment, utilities, and maintenance required on the house.

Yeah with stocks, you're typically not getting much of a dividend to help offset the loss. If your dividend is only 2 percent, it's going to take a long time to recoup your loss. But if your dividend is 13-15 percent, it happens pretty darn quickly.