Terry Sprouse

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,

Terry

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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.

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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.