Refinance w/ cash out to pay off debt and purchase income property

[Josh Hesketh]

I am new to real estate investing but eager to learn. I am in the process of refinancing my current 30 yr mortgage to reduce my monthly payment. We determined we will save almost 200 dollars per month but will extend the current 27 year loan back to 30 years and add 70k to the balance Throughout the process. Recently we have become more interested in pulling cash out (70k) which would pay off our cc debts,2 car payments, and provide 45K to put down on our rental property..We have 50% equity in our occupied house. My concern is... Would it be worth it to pay for the 3% auto loans and 0% balance transferred cc's to free up cash for this new home?

[Jon Holdman]

Is it worth converting 5 +/- year car loans into 30 year loans? Uh, no. Same for credit cards. You're falling into the trap of using your house as an ATM. Lots of folks did that during the bubble. Now they're underwater and hurting. The real danger here is now that you have no car loan you start thinking you'll trade that free and clear car for a new one. Or that you'll start charging some more stuff on those zero-balance credit cards. I strongly recommend Dave Ramsey's "Total Money Makeover" to give you a different perspective on this choice. I don't agree with everything he says, but its an enlightening read if you're even thinking of doing what you propose.

Is it worth taking cash from your primary residence and using that to invest in rentals? That's a much, much tougher question. IMHO, this is not a good idea. You're putting your residence at risk to start investing. Better, IMHO, to get your financial house in order so you can start accumulating cash to use for investments. That may take time, but you have much less risk.

IMHO, a residence is just an expensive doodad like a boat or car. You don't want to be mortgaged on an expensive doodad. You want to own those outright. So, a residence should be something you own free and clear. If its free and clear, you can never be kicked out if you lose your job or suffer some major financial setback. If its mortgaged to the hilt, this is a real possibility, as many folks have discovered.

Others consider this as having a lot of "trapped equity". My response would be not to buy such expensive doodads. Live in a cheaper house. Drive a cheaper car. But be that as it may, you may want to read their opinions. There was a long discussion about this a few months back:
http://www.biggerpockets.com/forums/48/topics/74978-to-pay-or-not-to-pay-off-your-primary-residence