Re-fi, equity out, buy later?

[gnosis]

Help with advice please.
I can refi equity from two houses (primary and secondary residences)and take 600-700K out total. The payments will go up but I can cover these with the equity money. This will free up the money to invest at or near the bottom of the market (2-5 yrs?)while grabbing a reasonable interest rate and appraisal now.
Would you do this now, or wait and hope the rates stay down and the appraisals stay near where they are????

[sdrealtor]

Why pay interest if you may not even use it. Open a HELOC and watch the market. The rate will be higher if rates climb but you may not even do anything if the market doesnt drop significantly in nominal dollars.

[no_such_reality]

but I can cover these with the equity money.

That should answer your question that you can’t really afford the new payments.

[PerryChase]

I wouldn’t bet on interest rates going up a whole lot if the economy slows down. Plus making the loan payments using the equity money is not a great idea.

When prices come down, you can buy a house and move into that house as your primary residence to get the best rate at the time.

[surveyor]

educate

i think you need more information before you start doing that kind of stuff. I recommend taking lisa vander’s real estate investment workshop (www.pacblueinvestments.com). She also has a radio show on AM 1700 on Thursdays, 8:00a.m. to 9:00a.m. If you call up on a Thursday and tell them that you heard about the workshop on AM 1700, they will give you a discount so that the workshop will cost $299 (i think) vs. $599.

With $600-$700k worth of equity, you can probably buy about $3.0 million worth of investment properties around the country, but you should really take the class and they will show you how to do it.

If you are interested, pacblue investments will have a free teleconference with lisa vander this wednesday at 12:00p.m. Call 858-704-0462 to register.

I was in the same boat as you a few years ago. I took the class and learned a lot. I wish I had taken it sooner, then I wouldn’t have had to make to many mistakes to learn from.

[(former)FormerSanDiegan]

surveyor – Really ? Are you recommending taking maximum cash out of properties today and leveraging at 80% LTV on new property ?

[surveyor]

LTV

all i really advocate is for gnosis to take the class and to learn how to leverage and use equity to invest. the class lets you use your own judgement and comfort level as to how much to invest, whether 80% LTV or less. i don’t really know what gnosis’s comfort level, sophistication, or ability to take on risk is.

using an 80% LTV is not in and of itself a bad thing, but you have to know how to use it in the best way possible.

[gnosis]

First off, thanks for the comments.
I can afford to do these 80% LTV’s, but I don’t know if the timing is right. I would wait ( for the bottom of the market)IF the appraisals hold allowing me the current loan amnts, and IF the rates are likely to stay at or near the current numbers. I was researching these two questions and came up with the greater likelyhood that the appraisals will drop as the bubble empties, and the rates will increase as a function of global corrections etc..
So, if I wait I may not be in a “cash is king” position that I would have otherwise been in. Of course the down side of paying out money on borrowed money sitting somewhere for an extended amt. of time is obvious.
Please share more thoughts!

[(former)FormerSanDiegan]

I was more worried about the today part of my question than the 80% LTV.

Taking cash out of your property today using a fixed rate loan with the possibility of buying something cheap in a couple years is a reasonable proposition. Buying something now with it is dicey.

[no_such_reality]

The devil is in the details. The details that are pertinent in this case are:

1. What are you going to do with the money in the short term? Park it in a CD?

2. What’s the total amount of loans you’ll have out? $600-700K + current balance?

3. What’s the rate you’ll qualify for on a cash out refi? Cash out refi’s are usually higher than regular mortgages.

4. How much time and capital is left on your current mortgages?

5. How does your debt load with the refi compare to your current income?

Other options may include refi-ing one house and using it to completely pay off your primary residence. You still get the tax deduction of the current loan amount, however one house is no longer subject to a loan and mortgage lien.

[gnosis]

Buying something now with it is dicey.

Exactly!. I would wait either way. Would you Re-fi and wait or wait and re-fi then buy??

[(former)FormerSanDiegan]

n_s_r makes several important points.

Deduction of interest is limited to acquisition debt plus 100K for primary residence up to $1 million. It is also limited to acquisition debt on investment property.

If your rate is higher, it become fairly expensive.

If I were you I’d pencil it out assuming a fixed-rate second. If you take a fixed rate loan, What it’s costing you is the 2% or so between what you earn in short-term investments and the loan rate (assuming you can deduct the loan, if not you have to consider after tax on the interest, which makes it more expensive).

Consider this an option at the price of 2k per 100K borrowed per year, to guard against increasing rates or lower property values. If you hold the cash for 2 years and things are exactly like they are today, or rates drop you will have paid about 28K for this option. It might be worth it as a hedge. Nothing is free. But, If rates are higher in a couple years you (and cash) will be king. If rates stay the same and prices drop, you have more cash at your disposal than you would have if you didn’t take the funds today. It seems like a reasonably conservative and inexpensive hedge to me, as long as you exercise discipline and don’t dip into the funds prematurely or for other speculation.

Again, consider the points n_s_r makes regarding deductibility, any increase in rate with respect to you current debt, etc.

[gnosis]

ANSWERS:

The devil is in the details. The details that are pertinent in this case are:

1. What are you going to do with the money in the short term? Park it in a CD?
YES-

2. What’s the total amount of loans you’ll have out? $600-700K + current balance?
180K @ 4.75%X15 YR WITH 40K @ 8.75% HE LOC LOAN (ON PRIMARY HOME)
130K @ 5.3% X 30 YR SECOND HOME

3. What’s the rate you’ll qualify for on a cash out refi? Cash out refi’s are usually higher than regular mortgages.
BOTH LOANS 30 YR FIX @6.3/8 1 POINT FEE (GREAT CREDIT SCORE)

4. How much time and capital is left on your current mortgages?
PRIMARY RES. 8 YRS TO PAY OFF APPRAISAL @ 525K
SECONDARY RES 27 YRS TO PAY OFF APPRASIAL @ 425K

5. How does your debt load with the refi compare to your current income?
PRIMARY+ EQUITY LOAN= $2,400.00/MO NOW. WITH REFI=$2,800/MO
SECOND HOME= $1,100/MO NOW. WITH REFI+ $2,800/MO
I THINK I WOULD OPT TO USE SOME OF THE BORROWED REFI MONEY TO COVER THE INCREASE IN MORGAGE EXPENSE.

Other options may include refi-ing one house and using it to completely pay off your primary residence. You still get the tax deduction of the current loan amount, however one house is no longer subject to a loan and mortgage lien.

[Author]

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