Sitting on equity on primary residence

[Sara Kirkpatrick]

My husband and I own our primary home outright, it is not in our LLC where we hold our rental homes.

We had the local bank do an in house appraisal and it came back about much higher than we anticipated.

I asked our accountant about pulling equity out to purchase a rental home and she absolutely advised against it- for tax reasons (we would have to count the interest paid from our LLC as income and we are at a place we don't want to do that- trying to keep our income low). and risk (we could lose our home). I wasn't planning on pulling anymore than 1/3 of the value out but that's just a matter of risk tolerance).

Any suggestions, ideas on how to not let that equity just sit there? We do have plans to brick the house to do a forced valuation here in the next year or two.

Thanks!

[JD Martin]

Second rule of investing: don't take investment advice from people who aren't investors (first rule: don't lose money) :) 

1. Your risk of losing your primary home depends on the success of the rental property(s) and your ability to pay the additional note irrespective of income from the rental. If you can pay the note whether you bought a rental or took the money out and blew it on a Space-X flight, it doesn't make any difference. When that's the case - that your ability to pay the note doesn't depend on the income from the rental property - pulling the equity is totally smart money. If you need the rental money to pay the note, well that's a little more risky and then you have to factor in the quality of the rental and the likelihood that it makes money. If you can minimize the downside and have a plan in place if things do go wrong, then it also doesn't matter.

2. The interest you pay to purchase the property is deductible against the property's income.

3. How much investment property does your accountant own?