Have equity, and looking to invest

[Daniel G.]

I'm a Utah native living in West Jordan. I have been noticing the crazy market lately, and also the great mortgage rates.

If I did a cash-out refinance right now, I could get around $200K to $230K from my equity, and could afford the new monthly payment even with no rental income (for the short term).  It seems like a great time for such a refinance to lock in low rate.

My father has also retired and is willing/wants to help me out, and is considering putting $100K to $150K of his own.  I trust him implicitly.  (The real question is, should he trust me to know what I'm doing... )

I don't think mortgage rates will be going down, only up.  So I'm willing to do the refi and sit on the cash from the refi for 4-6 months while I learn what I need to know and look for the right investment.  Unless someone tells me I'm nuts for that.

The thing I have no idea about is if this is a good time to invest. It seems the prices of properties in the $250K to $400K range (which I'd think would be good for rental properties) are quite inflated right now, even more than the high end of the market. I'm worried that rental properties at these prices that can turn a reasonable profit/ROI compared to purchase price might be few and far between. And - will I pick a good neighborhood?

So, I have a lot to learn.  

• My main question right now is - is the cash out refinance right now a good idea?
• Second question is - If I'm serious about investing, is now a reasonable time to start learning with intent to invest in the next 6 months?

Thanks in advance!

[Aaron W.]

@Daniel G. If you want to lock in rates, then right now is probably a good time to do your cash out refinance. However, you will need to start making payments on the refi right away. You could consider doing a HELOC so you can pull out the equity as needed. You will have a little higher interest rates on the HELOC but more flexibility.

Although there is a lot of talk about an upcoming "crash" in real estate, nobody really knows if or when it will happen. If it does happen, will it be to the scale of the last crash? Everybody's crystal ball will tell you differently. If you are not comfortable investing right now, then you can sit on the sidelines and wait and see. If you decide to jump in, then be conservative with your analysis and expectations. Stress test your analysis to ensure you can make it through any potential pull back in the market. Even if there is a pull back and you buy conservatively, then you'll be sitting in a good place when the market recovers.