I went back and read the initial post and I thought it interesting. wantobuy it seems to me that the entire strategy is based on the concept of it being difficult for you guys to accept the loss of equity on the current home you live in. The is frequently hard to accept because quite honestly the course you are choosing may indeed by driven by emotions rather then logic, (which is frequently the case in real estate).

However it may not be the correct case. Now while this is a home, I wonder if you would draw the same parallel with a stock. As I am very proficient at investing in stocks that immediately lose equity, I can tell you from first hand experience that it is hard to cut that cord and accept the loss. It is easier to tell myself that sometime in the future, the stock will not only turn around, but it will recover my losses, and eventually appreciate to more then what I bought it for. In some cases that may have been true but in those cases it would have taken a long time and in most of those cases the opportunity of missed investments definitely occurred. In other cases it simply would have never happened and I would have owned the dog forever.

Now I know stocks and homes differ but I am just illustrating the emotional heartache one goes through when they have a depreciating asset.

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In your case you are trying to rationalize different reasons to avoid coping with acceptance of a loss by extending the ownership of the depreciated asset. Your plan includes throwing more money at the problem, (by refinancing the depreciated asset, which may or may not work given the depreciated value and tigher lending standards) and then converting to a rental. I can tell you first off that when you shop for a new home that you will not get an owner occupied rate as lenders are very very tight on that now. So your new home will not have as low a rate as you can get which to me is adding up to more money lost.

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What I see here is two seperate issues. If you want to move to a new home then go move to a new home. Deal with reality of the situation correctly and you will heal faster both emotionally and financially. If you want to invest in rentals then invest in rentals the correct way. Your proposed solution to me is risky. If you are holding two homes, (you paid to refinance the first one, you got a non owner occupied loan on the second one) and then you have rising rates and continued depreciation on the first home which you now HAVE to sell in 5 years….

I don’t know…it just seems like the totally wrong path to me.

I would consider moving it now, OR if you need more room, perhaps consider adding on to your current home or renovating it? This will be a fraction of the cost of buying another home.