All Forum Posts by: Ben Bartels

Do you have any recommendations/guidelines around using equity in your personal home for investing? Is it smart to keep refinancing into 30-year mortgages since the interest rate on that money is lower than other loans?

My wife and I purchased the house that we live in in 2019. Originally, our goal was to pay off the house as quickly as possible, so last year, we refinanced our 30-year, 3.99% mortgage to a 25-year, 2.99% mortgage. Now, we’re rethinking that idea since conventional mortgage rates are higher on investment properties. Mathematically, it makes sense (I think) to maximize our loan, both in terms of duration and amount, on the personal property and use that money for investing. However, since we’re new at this, we’re looking for advice from the community on whether or not that’s a good idea. What have your experiences been on this topic, and what factors do you take into account when making this decision?

For context, we are stable income-wise, so no concerns about a job loss or injury preventing us from making payments. Our house has appreciated about 15% over the past two years, so we should have some equity we could take out in addition to lowering the monthly payment.

One last note: I know a HELOC is another option. From what I've seen, I think the rate is generally higher, and I'm not sure how lenders would feel about us using a HELOC for down payments. Even though refinancing is technically taking on debt, just like a HELOC, it feels different. If anyone wants to speak on how they chose one or the other though, please feel free!

Thanks everyone for the insights and advice! My key takeaways from this were:

1. Cashflow can (and should!) be invested when comparing returns on investment.
2. Real estate brings the possibility for good deals, which can create massive returns in a very short period of time.
3. Real estate can be very passive or active - the more active you are, the better chance you have of a higher return.
4. Leveraging is pretty straightforward with real estate. It can be done with mutual funds, but it's not as obvious.
5. Diversify. There is no "perfect strategy", so hedge bets through "horizontal income streams" (thanks @Account Closed for the terminology).

@Jefferson Simmons thanks for the response! Do you know of any good resources for calculating how the tax benefits from depreciation and the loan pay down affect your return?

@James Free that makes a lot of sense, thanks for the additional detail! I did forget to do anything with the monthly cashflow, and that makes a big difference.

I feel silly asking this question, but my wife and I have been struggling to compare our investment options. Obviously, BP forums/podcasts/blogs/etc. indicate that real estate is a good way to go. It sounds like a 15% annualized return is pretty realistic. Dave Ramsey suggests investing in high-performing growth-focused mutual funds. He suggests that a 12% annualized return is realistic.

At first glance, real estate seems like a no brainer. It's the higher percentage. However, when I try to figure out exactly how I hit that 15%, I'm stumped. I haven't found a good example to convince myself of how it works.

Suppose I invest $25K into mutual funds and get Dave's estimated 12% over 30 years. At the end, I'll theoretically have close to $900K.

Now, suppose I take that $25K and purchase an investment property worth $80K (with $5K for closing costs, loan fees, etc.). Let's assume it triples in value over 30 years, so at the end, I sell it for $200K. Let's also assume I cashflowed $300/month, so that's another $108K over 30 years. I know I'm missing rent increases, depreciation, tax benefits from paying loan interest. Is there other stuff I'm missing, and can those things really add up to an additional $600K to make real estate the better investment?

I'm sure there are resources out there to explain concrete examples, so it's absolutely fine to just link to something rather than coming up with your own example. I haven't found anything yet that actually goes through the numbers though, and without actually going through an example, I don't understand how those additional benefits from real estate can make it a better investment. Thanks in advance for helping me figure this out!

@Brian Wilson total rookie here, but I think the La Crosse/Onalaska area has lots of potential. Several universities and hospitals bringing in jobs, a downtown area that’s being revitalized, and a decent array of shopping and fast food choices. Pretty low prices, picturesque landscape. Taxes are starting to go up though.

Someone on the real estate rookie podcast a while back said something like they look for a Chick-Fil-A, a Starbucks, and a Walmart because those chains tend to open in places with high growth potential. I believe they have all three in the area now.