Should I refinance my house to buy a rental house?

I recently received the following email from a student who is taking my free 7-week course.

It addresses the very topical issue of refinancing your existing  home, and taking out equity to purchase a rental property. Below is the question and my response.

From: Janet
Sent: Friday, June 18, 2010 12:12 PM
To: ‘Terry Sprouse
Subject: Re:7-Week Fixer-Upper/Rental House Course: Lesson 7

How does the refinancing work in this underwater market? i just bought a house in Jan, do i have to wait 10 years to do this? i am 50 now, should i wait till i am 60 to start doing this? sincerely, Janet

Hi Janet,

That’s a good question.

Everything depends on how long it takes to generate some equity in your house. And, of course, that depends on the situation that the market is in. Right now, as I’m sure you know, housing values are not going up very quickly. In fact, in many areas of the country, housing prices are going down.

So, in your case, all you can do is wait and see what happens. If the housing market improves again, you may be able to refinance sooner rather than later. But, until the equity in your house increases, you would not be able to refinance and buy an investment house.

Best regards,



Usually you need to live in a house several years before you have enough equity to refinance and purchase another house. I lived in my house ten years before I took out the equity to buy my first fixer-upper rental house.

Another possibility it to find a partner with more equity in their house, or who has some cash, and to jointly buy an investment property.

***Warning! Shameless Book Promo Coming Up***

If you are new to investing, make sure you have a good inspection done of your investment property, and follow the safe steps for investing, as I discuss in my new, easy-to-follow guide for beginning investors, “Never Sell Your Home! How to Turn Your Home into a Rental House.”

Buying an investment rental house with the equity from your home is one of the safest and easiest ways to start a reliable new income stream.  But, timing and planning are everything.

I wish I had remembered that before I spilled spot remover on my dog, and he disappeared.

But in real estate investing, one of the most basic principals, like the law of gravity,  is that you must  have some equity in your house before you can take it out and use it.

You can’t rush things, or you’ll wind up with your dreams broken faster than a movie star wannabe, just off the bus from Kansas.

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7 Responses to “Should I refinance my house to buy a rental house?”

  1. What a really good blog you all have going. I enjoy the combination of excellent and precise details coupled with a number of intellectual opinions. It’s good to at last come across excellent blog posts where I believe I could have confidence in the text as well as respect those who whom post it. With all the net waste these days I always enjoy uncovering some real voices on the internet. Thank you writing and keep writing, please!!

  2. roger says:


    I am frustrated. It seems that you have much more content out there that I am not finding.

    Where do I find this free 7 week course you mention in this post?

    Where are the radio interviews you do?

    • admin says:

      Hi Roger,

      Thanks for the note.

      The free 7-week course is in the upper right hand of the blog. Just write your name and email address in the blanks provided and you will immediately begin to receive the classes. One class will be emailed to your each week. Let me know if you encounter any problems registering.

      Because of some other projects I am working on (watching The Three Stooges, cutting my toenails, etc.), I have had to push back the radio interviews a bit. They should get rolling by August.

      Actually, I am working on another book, and am also making preparations for a family vacation up to Colorado. I’m hoping to show the kiddos where I grew up in northern Colorado.

      I did 22 radio interviews across the country last year, from April through August. You can go back to some of my older blog posts, and if the links still work, listen to some of those interviews. Some of my links stopped working when I switched over to WordPress from Blogger.

      Like last year, I will announce my radio interviews ahead of time so that people who live in the cities where I am interviewed can listen, or call in with questions of comments.

      Let me know how you like the 7 week course.


  3. […] Refinancing an existing property for downpayment money is a lot better than waiting until you have enough cash to purchase a rental house withouta loan. Having a loan gives you leverage, because you don’t have to use all of your own money, which could take 20 years or more, to save. […]

  4. […] subprime mortgage bust has scared a lot of people away from the shaky housing market. The nightly news is filled with images and stories of everyday Americans who are losing their homes […]

  5. […] was reminded of this again when we discovered that we had termites in one of our bedrooms. This is a fixer upper house that we are living in as we make repairs. My son bumped his foot against the floor trim and found that there was no longer any wood trim […]

  6. ironfish Joseph Chou…

    Should I refinance my house to buy a rental house? « Fix em Up Rent em Out…

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