Is Your Personal Home Bad Investment?

Question

Hello Everyone, A few years ago I bought my primary residence thinking and being told that it would be a great investment. Not knowing anything about real estate investment a week into owning my home I started to rent out rooms. My reason for renting out rooms in my house was very simple, I rather save my money then spend it. My concept is that I try "To buy what I Need not what I Want." I didn't cash flow for the first couple of years until I refinance my home and interest rates dropped from 4.75 to 3.5. The difference was $543 a month. (This does include Insurance and taxes, with all expensise paid I pocked an average of $150 a month. Basically I live for free). I also have an $148K in equity in my property. Since then I have partnered up and bought two out of state investment properties. I also have been listening to biggerpockets and reading about real estate investment and one of the things that keeps popping up is that its better to rent then to own a personal property. I'm a bit confused by this.

My questions are as follow;

1. Should I sell my home and buy multiple long term buy and hold properties? Making sure each one cash flows.

2. Instead of selling should I borrow against my home? HELOC?

3. Should I stay in my current situation and use conventional and eventually portfolio lender financing?

What would be my best options?

Thank you,

Paulo

My questions are as follow;

1. Should I sell my home and buy multiple long term buy and hold properties? Making sure each one cash flows.

2. Instead of selling should I borrow against my home? HELOC?

3. Should I stay in my current situation and use conventional and eventually portfolio lender financing?

What would be my best options?

Thank you,

Paulo

Nazz Wang · Answer

It really depends on what kind of return your new purchases will be and what is the rent in your area. Most simple thing, do math for both hypothetical situations and see which one brings you more money, consider rent you will pay, and the interest you will pay for heloc for cash out, and whether you can finance the new properties or not.

I personally would never sell a SFR in an appreciating location so I can milk it during every cycle. It provides a great option for generating equity and a safe place to leverage long term fixed rate funds.

Jay Hinrichs · Answer

@Anthony Gayden

great question and If I had a crystal ball I would be flying my G 4 around and not spending 2 minutes on BP  LOL...

I call it the accidental millionaire  I was born in the BAy ARea raised in Cupertino and did not know anything else.. other than when you lived in that area owning a personal resi was rule number one.. EVERYONE knew you needed to get into that house.

Jay Hinrichs · Answer

@Ken Martinez

only purchase money deeds of trust in first position allow a CA home owner asset protection.. second loans or Helocs a lender can get a judgment. ( did not happen much) but they can

Ken Martinez · Answer

If you own a home with equity, then having a HELOC provides an additional benefit you might not have considered, which is asset protection.  Now using your HELOC to invest is a conversation for another day, but having one should be mandatory especially since they are usually free as long as you keep for a minimum number of years.

Paulo Tomas · Answer

Thank you for replying that helps me understand a direction that I might take.

John Thedford · Answer

I own my personal residence. I was encouraging a friend to borrow against hers and buy her first investment property. Two hours later, at a Steven David CE class we were attending, he stated you should never use your house as an ATM:) I believe the correct answer is what fits your needs with the caveat that you should never endanger your personal residence. I can get by with one less rental, but I cannot get by without a roof over my head. Having no mortgage payment is certainly peace of mind!

Anthony Gayden · Answer

How do you determine if you live in a market that will become highly appreciating? 30 years ago no one thought Austin or Denver would be hot markets.

Jay Hinrichs · Answer

@Paulo Tomas

really depends where your Personal Resi is.... if your in a market were prices are flat and really never move much and price point is low to start.. owning is not that critical.. you can have roomates in a rental as easily and live rent free.

but if your in a high appreciating market then I personally think a personal resi is a smart move to almost mandatory.. for me personally I bought my first personal resi in Milpitas CA in 1979.. it went up 50% in 18 months fast forward to 4 bay area personal resi's and 3 in Oregon and I have pocket well over 2 million in tax free gains by owning homes that I lived in for 3 to 5 years that went up 100 to over 500k by just living there.

You can buy a personal resi with the least down and lowest interest rate.. anchor yourself there then move out from it...

Is Your Personal Home Bad Investment?

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