Is my family being too cautious?

[Ibrahim Yamini]

I’ve been looking into buying investment properties for the last year and the main thing I wanted to do was build up my credit to put me in a better financial position to acquire a property.

Here in Phoenix, houses keep going up because a lot of Californian’s are moving here.  A bunch of new neighborhoods are being built as well.

I had a conversation with mother, who is a real estate agent by the way, about taking $100K out of my house to buy an investment property.  She doesn’t think it’s a good idea.  Keep in mind that she used $40K of her equity to buy a $120K house in 2006.  She sold it for $30K in 2008.  That house is worth $150K now.

My wife said she’ll support me in taking the equity out to buy an investment property but she said we’re going to take a big hit to our credit.

We currently owe $218K on our primary up a new mortgage will bring it up to $390K

However, when I ran the numbers, assuming I would be buying a new property every year until 2027, I’m estimated to have roughly $250K of total equity from 5 properties.  I can then use that to pay down my primary residence significantly.  Possibly even pay the remaining balance off from other sources of income.  I would have originally paid $600K for my first loan over the course of 30 years, but I’ll be paying a lot less and in a shorter amount of time.

She said I should just save the money for a down payment, which is unrealistic.  Some loan companies want 25% down.  That would be $75K on a $300K house.  With her method, I would be sitting on the sidelines while the Californians drive the property values up to possibly $600K in the coming years.

I understand my mother’s caution, but the things that happened in 2008 are unlikely to happen again, at least in the next 10 years in my opinion.     

 My wife also said taking money out of the for an investment property is a big risk.  I disagree.  I think it’s the smartest risk.

Is my wife and my mother being overly cautious?   My mother thinks I could lose my house, but I don’t see how as long as I’m paying the mortgage.

She said, what if the maker crashes?   it’s unlikely that that would happen anytime soon, but then everything’s on sale.  I don’t plan on selling my primary at all, so I don’t see what the issue is.