Refinance for the "crash"

[Steven Lee]

Would anyone refinance their home and hold the equity of it to have enough money for when more affordable homes come up (possibly during the down turn of the market)?

[Joe Homs]

@Steven Lee  the short answer is YES.  However, this is the way that I do it.  

I have been using HELOC's since they came out many years ago. This is the best time to have one since they will appraise your home at a much higher value then during the downturn. This is important because during the last downturn the HELOC lenders DID decrease the amount of drawing power after the bubble burst. If you are a savvy investor and know this then take the draw before they do, like I did all over Orange County, California by backyard.

Now, in a more stable and up market I use my HELOC year-round to purchase my fix and flips. Yes cash is KING and I do have it in my HELOC. I also use hard-money as in my recent purchase in Tustin, but that is another topic.

Now with all that said I must caution you. You must be a disciplined investor. YOU must establish goals and rules for the HELOC. It is NOT a vacation fund, buying a new car, etc. I use it for my fix and flips and I am disciplined enough to put the money back in when the flip sells. You should be too. I just closed on a flip in Dana Point and I am ready for the next.

As far as the bubble goes watch out for these three things and you will be fine.  1.  JOBS, JOBS, JOBS (massive Job losses lead to Real Estate Downturns.  2. Massive interest rates rise (I'm talking in the 6-7% range even though I paid 14% for my current home in Mission Viejo 40 years ago when I bought it.)  3. Banks getting crazy again with "Warm Body Loans,"  if they start coming out with 100% financing, lowering credit standards, creative financing to help millennials then watch out.

Happy Investing...