|Question from Rob in Woodbury, MN||Is using my equity for an investment home a bad idea?|
Rob, this is something people ask themselves all the time when they get started in the real estate business. Please remember that you ay have different goals and objectives than the next person, so my opinion my differ from yours. BUT since you asked, I’ll give you my opinion.
Using the equity in your home to purchase an ASSET (something that will produce income for you) isn’t such a bad idea. You need to look at all of the factors that are in play. What is the cost of the money to use the equity in your home? What are the terms? How much income will you produce from the investment? Is it enough to cover the expense of the loan? What happens IF the investment that you purchase goes south? Are you in a position to pay that back? Or will you be in trouble?
I always use the theory that if I can’t afford to pay cash for it,or I cant figure out a way to get the seller to finance it to me, then I dont need it.
If you’re using the equity in your home to purchase a LIABILITY (something that will cost you money), then Yes, its always a bad idea. Besides, the equity in your home will only take you so far.
Most of the time in the creative real estate business, you aren’t going to need money to buy investment properties. If you’re looking to build a rental portfolio, then learn how to structure Owner Financed, Lease Options (with right to Sublease) or Subject To deals with the sellers.. Use OPM to purchase real estate. (OPM= Other People’s Money). This method will keep you out of the banks, and put you on track to building a cash flowing portfolio of properties that you can retire on.