Can we use equity as down payment to buy a second home?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Without a rental history on your property, you would need to show the bank that you have the income to pay both mortgages at the same time (new house + old house).

In any event, this doesn't seem like a good rental property to me. Assuming no other expenses (which won't happen) you would clear $1,500 a month or $18,000 a year. That is a pretty poor return on the equity you have in the house of $800,000. It is on the order of 2%. This property just doesn't make sense as a rental., if you take the equity out of the house, you probably will actually lose money on it each month.

I took this question differently than you did.. OP you may need to explain. I thought you live in a house worth 1.3 w/ 500K owed. Not sure why this is questioned as a bad rental if the $5000 per month or even less is attainable. If the renter is paying that amount you'd gain the $1500 and whatever amount goes to principal on the loan..sounds great to me

OP owes $500k now, but wants to pull out another $200k-$300k (ish?) to make a down payment on the next house. So it would be $5k/month (again, not clear how correct OP is that they could "easily" rent their house for this) on $700-$800k of the OP's money, which could be potentially invested elsewhere. That adds about $1000 for a second mortgage, plus the $3500 original mortgage, and now you're looking at $500/month cash flow plus maybe $1500/month in increased equity. So, assuming full occupancy and no huge repairs, that's $24k/year.

A 7% return on that 700k in the market would be $49k/year, without the stress of being a first time landlord.

And a 10% return would be 70k. What is your point! Unless and until CDs or treasuries get to 7% there is simply no way to assume a 7% return right now. And spare me your genius investment strategy. No one believes your BS.

7% is the average return of the stock market over any 10 year period. That is my point. And leaving 800k in a house is not a guarantee of any return -- OP (you?) could have a bad tenant, prices could tank, etc. All I did was simple math to show that this is not a good real estate investment opportunity, but if it makes you lose your mind, then sure. Tie up all your money becoming a landlord to chase that 3.4% return. Good luck!

[Anonymous]

OP here. At least 3 Neighbors are renting their houses for $5300 and 2 are smaller than ours. To all of the Points on annual profit, we want to rent the house to pay off the mortgage and one day it will be 100% profit, how does this compare to 7% annual return over the long-term? What is a common rental property profit look like?

What is home equity loan monthly payment on $400K like? If we could pay $3500 on new home would $5000 cover old mortgage and equity loan? Would we have any cushion for repairs or no tenants for a month?

[Anonymous]

OP again. It's 2 units- together the rent is $5K

[Anonymous]

We have done this. I strongly recommend taking this question to a couple of lenders, rather than DCUM. You will find people who can make this work.