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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]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.

[/quote]

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[/quote]

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. [/quote]

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