What is the best way to go about our next investment financially?

[Lorraine Martin]

We have a property paid off with about 300,000 equity in our investment property. Single Family Home. 

Should we do anything with the equity in that house and borrow against it to buy another investment property? If so, what kind of loan should we take? Most loan officers don't do HELOCS on investment properties... I will say we have a HELOC on this house right now for 85,000 and it is being used on nothing. So I do plan to use this first as a down payment if we find a investment. This line of credit ends in 4 years though.

We also have our primary residence paid off and that is a double wide though. Any approach we should use with this property to buy a future home? 

Or just get a regular conventional loan with 20% down payment. (we have cash that we can do this) 

[Nathan Gesner]

1. You have cash for an investment, so use it to buy an investment.

2. You should absolutely consider a cash-out refinance to pull out the equity. I recommend 60%. Use that money to buy additional investments.

3. Cash out is better than a LOC because the LOC carries higher interest and needs to be paid off quicker. Hold the LOC for emergencies or really, really good deals that pop up when you don't have cash on hand to nab them.

Have you ever done the math to determine what your return is? Use the BP calculator and evaluate the investment you currently own as an example. First, pretend you bought it today for $300,000 and paid all cash for it. Then, change the numbers so you're buying it for the same price but with 20% down or 60% down. Which one is giving you a better return? 

Here's a simplified example. If you buy a $300,000 home for cash and it appreciates 5% in a year, your $300,000 is now worth $315,000. You've earned a 5% return. If you bought that same home with 20% down ($60,000) and the home appreciates 5% in a year, your $60,000 has gained $15,000 or a 25% return! You only own 20% of the home, but you get the increased value of the entire $300,000. Then you get the tax benefits by writing off mortgage interest.

If you're comfortable and don't want to grow, stay where you're at. If you want to grow, you have to take the equity out and put it to work.