What to do with equity in primary residence

Question

My husband and I are trying to decide what to do with the equity in our primary residence. We paid it off this year and with price appreciation over the past 7 years since our purchase, the house is now worth about 500K. We are in our late 30's with two small children and want to maximize monthly income so we can work less and spend more time with our kids. We are planning to move to Alabama in the next 1-2 years where my family is and where schools/cost of living is much better. I have many different ideas about how to invest this money for the best return but I am curious as to what others would do in my situation. Thoughts? And thank you!

Jody Schnurrenberger · Answer

I'm from Auburn and have a few rentals there, but I've quit buying in Auburn. If you want to LIVE in it, I certainly can't speak badly of buying a house in Auburn. The schools are some of the best in the state. And in general, I think it's a lovely, relatively safe town. As for rentals, the returns aren't that great because the prices are so high. Though your money is probably safe as the market probably won't bottom out in any but the worst crashes. During the recession in 2008, etc. I read an article saying Auburn was one of 15 places in the nation where property values still increased that year, though I don't recall the exact year. Personally, I've quit buying in Auburn. Of course, there's always someone who gets lucky so maybe that someone will be you one of the times. But just be sure about your research and numbers and be open to Opelika and other areas nearby. Also, consider alternative means of acquiring properties like Driving for Dollars. ;-)Are you planning to manage any rentals yourself? If not, BEWARE OF AUBURN PROPERTY MANAGERS!!! NO LIE! I've been repeatedly told there are no good ones and now believe that may be true. I've been through 3 before settling with a 4th from out-of-town. I pay more and it's not convenient, but seriously, I belong to the local investor's group and have a couple of agent friends. I'm telling you finding a good property manger in that area is like finding a gold doubloon during a day at the beach! Nearly impossible! Send me a PM if you want to know my one possible suggestion and why I'm still hesitant about them, another you could use if you make sure to stay on top of maintenance requests and rent yourself and a third to absolutely, under no circumstances use! (Three of my 5 tenants threatened to leave after a year with him.)Auburn is a great place to live, but for owning rentals, because the cost of acquisition is so high right now, it's not a great place to put new money. I hear there is a market correction coming in the next 2-3 years and I may dip back in then. But until then, at least consider some surrounding areas. Just my 2 cents. :-DGood luck with the future!

Katie B. · Answer

Jody - Thank you! That is good to know about property managers in Auburn. I will definitely PM you for more information. I have a property there that I will be renting soon after the summer. Auburn is more expensive than some areas of Alabama but compared to Northern NV it is cheap in my opinion. I do want a good return so I will look into other areas like suggested. Thank you!Joseph - Thanks! I've looked at Montgomery briefly, mostly in 36117. My mother assures me that it is the only good area, but I would love to chat with you more about it. My husband and I are going to keep some of our money in the West for appreciation so cash flow is most important for now. Christi - Thanks! I will definitely look into Montgomery more. We will be in the area in the summer so I will look you up. Thanks again.

Joseph Back · Answer

@Katie Bomberger, I live in Auburn currently and have to agree with @Jody Schnurrenberger that prices have gotten to high to buy anything cash flow positive here. What I have been doing is investing in rental in Montgomery, AL. It is 45 minutes from Auburn and it probably one of the best markets in the country for cash flow. I will say Montgomery has higher crime and you should not expect any appreciation but you can buy cash flowing BRRR deals all day long. PM me and I would love to connect.

Christi Millo · Answer

I second the suggestion to look in Montgomery for your investments, though for where to actually live for the schools I would say either Auburn, or Pike Road (which is part of Montgomery County). Very close to Auburn and cash flow inside city of Montgomery for investment properties is very good. My husband and I are long time investors and also Realtors here, if you need any help just reach out. Thanks! Good luck!

Kiera Underwood · Answer

@Katie Bomberger on top of what you do with your equity I would make sure to house hack your personal residence each year in Alabama! As long as you're willing to move each year, it's hard to pass up putting only 5% down for an investment property!

John Teachout · Answer

I would use some of the sale proceeds to buy your primary home for cash. Keep that unencumbered. If you buy a modest home there in the Auburn area, that should leave the other half of the proceeds available for investments. If you buy SFR, that could buy you 4 to 6 houses. My guess is that would keep you busy for a while getting those stabilized. If they're paid off, they'll cash flow nicely and you can keep the profits to put towards additional properties as you find them.

Katie B. · Answer

Hi, we are planning to move to the Auburn area.Jerry, thanks for the reply. We would definitely sell. My question was more what would you invest in if in my situation to maximize income. I have two rentals that I own already in Alabama because prices are cheaper there and rental income is better.

Jerry Padilla · Answer

@Katie BombergerWhat are your intentions with the house after you move to Alabama? Are you planning to rent your current primary out or sell it? If you are going to hold it, then a cash out refinance is a good idea. This cash can then spread out as down payments on multiple investment properties. You would get properties that need some work to force appreciation and make your money go even further, with cash out refinance son these properties. If you are intending on selling the property in a year or two it may be worth considering a HELOC to avoid closing costs on a refinance.

Rob Drum · Answer

@Katie BombergerWhere in Alabama do you plan to move to?