refi for cash

[Brian Campbell]

Am I crazy with my new plan?

I have a home that I refied 5 years ago. I refied 90k for 10 years at 4.4%. I Now owe 55K and have 5 years left. My payments are 1200 a month, me and my wife (we've never married) have secure, decent jobs and can save about 1000 a month. I only have 20K cash and want to buy up to 2 rentals if the situation is right in the next year or so.

I've been through many scenarios. I have a possible partner in a family member. I would like a partner to split the risk and also because he brings maintenance knowledge to the table. This would also split the cost of down payment.

I have reached the conclusion that I should refinance my house and pull out 40k equity (I have 55K I could pull) through a government refi (at 95%) my broker told me about at 6% for 30 years making my new payment 730 and saving us 470 a month.

My plan is to take the equity while I can and be prepared to strike when I need to at the same time pocketing more cash with mortgage payment savings. I want to buy a rental for no more than 75k using my wife's (were not married) credit, Then buy a bigger home for us using my first time buyer incentives (teacher with great credit) and rent the home we live in now that I am going to refi, giving me two rentals.

Does this sound rational? I know refinancing will cost a lot more, but I will make 450 in rent (covering expenses) over the mortgage and will have gotten 40k out of it in advance. There will still be equity in it and I figure I could ride it out until it appreciates and then sell.

We're apprehensive in that we've worked hard to get this house paid off, but at the same time, I don't like the neighborhood and want to move anyway. So, if its just for rental should I care that I owe for 30 more years? Is it better to take the equity in this situation. The flip side is I use my cash and cut my reserve in half or worse.

I've been changing my mind to think that what's the point in having equity if I cant spend it. I am thinking about doing this tomorrow, so If I'm making a big mistake let me know. I want to act while I still can.

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