Life savings to pay off Only Rental house?

Question

Sanity Check.

Take $115,000 of $125,000 life savings to pay off a my only rental property in Abilene, TX.  Immediately take out a commercial line of credit (I'm pre approved) at 75%, which will be $150,000. Rents $1495, Cash flow after taxes, insurance, property management = $900 a month.

I retire in July and will take my family on a 1 year camping adventure. In 18 months I start my next career as multi-family BRRRR investor, and I'll have $150,000 line of credit, $16,200 minus any repairs/vacancy.

Pros: 1. Lock in credit line while I'm working, 2. optomize cash flow while I'm on adventure, 3. Money not sitting around doing nothing, 4. Wife isn't comfortable with long distance investing (live in Italy and Yes I've read David Greene's long distance investing book) 5. I can be more hands on

Cons: 1. Horrible cash on cash, 2. missed opportunity cost (I'd just buy 3-5 additional houses)

My real estate education consists of about 4,500 Real estate podcast episodes, read 10 real estate books.

Thoughts?

Joe Villeneuve · Answer

You just stepped over a $1,000 bill to pick up a dime.

Andrew Syrios · Answer

I'm not a fan of using all your liquidity to pay off debt, but if you are sure you can get the LOC, I would be more interested. I've just seen LOC's taken away from time to time (usually during deep recessions like 08), which would make me a bit nervous.

JD Martin · Answer

I wouldn't do it. The LOC or cashing out equity? I'd probably do that. Cash is king if you plan on buying any more properties, since you will need at least something for a down payment. You're taking liquid and turning it illiquid.

Theresa Harris · Answer

I wouldn't do it.  Your tenant is already paying your mortgage.  If you wanted to use some of that as a down payment for another rental, perhaps.

JD Martin · Answer

18 months is a really short timeline. I wouldn't take liquidity and freeze it on that kind of timeline. At best you're looking at picking up a couple of thousand in interest savings, with the hope that the credit line doesn't disappear or become otherwise untenable - and when you do use it, you're paying more interest than what you're saving now on the mortgage.

You can't always think of money sitting in the bank as just wasted, as if you have to optimize 100% of all funds 100% of the time. If you said you were going to leave that money sitting there for 18 years and this was your only other option, then I'd probably be on board with your plan as a 2% return is better than no return - but what you are planning to do here is earn about a 2% return for a year and then take out loans at 4.5%. That doesn't make any financial sense, frankly speaking.

Joe Villeneuve · Answer

Every decision you make now, out of impatience, will come back to haunt you down the road.  When you spend your money, it's gone, so spend it wisely...and not on a knee jerk reaction like this one.

Travis Fisher · Answer

@Drew Sygit 1. Brrrr multi family, 2. 3.75%, 3. Maybe, 4. Locking in low 4.5% financing I would consider cheap, if you can cycle that money at higher return.  But as this discussion allowed me to  reflect this would be a good idea if I wasn't buying my equity.  Paying 60% of 75% and then paying 4.5%.  Now if it was paid off by residents or additional cashflow from other sources with none of my W2 money, having LOC on it would not be a bad idea.

Drew Sygit · Answer

A lot of information missing here, so some questions:

1) Where is your long-term investing plan?

2) What is the interest rate on your current mortgage?

3) Can you get the same or better rate on a cashout refinance?

4) How can you invest those funds and your savings to make a higher rate of return than the cost of the funds?

There are many more questions you should be investigating, but you can start with these:)

Travis Fisher · Answer

Sanity Check fail

Appreciate you all taking the time for feed back.  Not doing it based on feedback, the below was going to kill it anyways.

While contacting the Bank somethings started not sounding/feeling correct.  When filling out the Initial loan application, I didn't complete it as I had a question.  Instead of answering the question he sent back the terms and next step being ordering an appraisal.  The terms seemed acceptable so I asked for the conditions.  The response was I'd get the loan documents closer to closing but I needed to order the appraisal. (This was the ending point)  My response was I'll need all the conditions before moving any money.  He currently agreed to provide them.  I won't be seeing those as I told them I'm not going to do the loan.

@Zachary Beach I thought of this because my family goal said its the only way she would be comfortable using the savings.  I've spent 5 years pitching long distance investing.  Then I started the what if thing, and then maybe it's possible and not as idiotic as initially thought.  Glad we have BP for a sounding board. To your questions, Yes I will have a decent pension starting immediately. Staying in North America, setting up the camper for off grid camping. (boon docking). Impressive on the 24 countries, I'm pretty close to that and I've lived in Europe for 11 years.

Dennis Wayne · Answer

Bad idea don’t do that ! Poor use of your cash bro

Life savings to pay off Only Rental house?

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