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Taking equity out of your home......

SKIDMARC

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I agree 100% with this. The last investment I would want to get into today would be the rental real estate market. With the Socialists running amuck in Washington D.C. you may rent out your house out and never receive a rent payment or be able to actually do anything about it either. Unless you can swing all 3 mortgages with 'your' income only I would run away from this idea.


This is my biggest concern!!! People not paying rent.
 

SKIDMARC

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Any good retirement plan includes more leverage and getting deeper in debt. Solid.


I get that, but my wife's uncle did the same thing I'm thinking. 20 years later of that method of thinking he is worth millions in property he owns completely and retired at 55.
 

BHC Vic

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Wife and I are planning on turning our first home into a rental in the next 1-2 years. In so cal [emoji1303]


I’ve yet to meet people with real wealth that don’t own multiple properties.

Like it was said above. It comes down to what you can afford and how much reserves you have.




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We wanted to do that so bad with our chino house. My tiny steel balls were scared I couldn’t swing it if something were to come up. I should have done it.
 

OldSchoolBoats

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The new home would be in Simi Valley, same with our current home. The house we would purchase we would be living in, not flipping.
What you are doing is occupancy fraud, FYI. You are knowingly entering into a refinance transaction as a primary residence, with the intention of turning it into a rental after you cash out, to buy a new house.

You probably want 80% LTV to get max cash and the nice low rate that comes with a primary residence vs. investment property.........everyone does. Only problem is that it is fraud.

I wouldn't touch that deal with a ten foot pole, but if you got someone who will, then cool. As I said in my previous post I have seen first hand notes be called due on transactions just like this. Make sure you read that occupany certificate in your loan docs very closely.

Best of luck man [emoji106][emoji106]



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SKIDMARC

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I’d say the majority of them picked them up as they could afford them. All are successful in their careers as well.

Always purchased in good areas.





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That's kind of my main question. I know some guys own businesses and have allot of cash. I don't own my own business but I am making good money, honestly if someone told me 10 year ago what I would be making I wouldn't have believed them. But hard work payed off.

So I'm really looking for feedback from people who have done this or have experience in it like real estate agents?
 

SKIDMARC

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What you are doing is occupancy fraud, FYI. You are knowingly entering into a refinance transaction as a primary residence, with the intention of turning it into a rental after you cash out, to buy a new house.

You probably want 80% LTV to get max cash and the nice low rate that comes with a primary residence vs. investment property.........everyone does. Only problem is that it is fraud.

I wouldn't touch that deal with a ten foot pole, but if you got someone who will, then cool. As I said in my previous post I have seen first hand notes be called due on transactions just like this. Make sure you read that occupany certificate in your loan docs very closely.

Best of luck man [emoji106][emoji106]



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Really!!!! Is there a time period associated with that law? Say I refi, and hold onto the money for say 6-8 months, then buy a house, would that be ok? This is all new to me obviously.
 

BHC Vic

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What you are doing is occupancy fraud, FYI. You are knowingly entering into a refinance transaction as a primary residence, with the intention of turning it into a rental after you cash out, to buy a new house.

You probably want 80% LTV to get max cash and the nice low rate that comes with a primary residence vs. investment property.........everyone does. Only problem is that it is fraud.

I wouldn't touch that deal with a ten foot pole, but if you got someone who will, then cool. As I said in my previous post I have seen first hand notes be called due on transactions just like this. Make sure you read that occupany certificate in your loan docs very closely.

Best of luck man [emoji106][emoji106]



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There’s people that will do it. A person I kn or just bought a riverside house and havasu house while taking money from their Carson house and renting it and living in the riverside house. They closed escrow on havasu house Sunday, Monday renters moved in. I’m starting to get that weird feeling about things. Also two brand new trucks, rv, boat, and sea doos. Makes a little less than me so it boggles my mind but hey I’m not mad just a little jealous
 

Ladsm

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I did this exact thing back in 2010. You have to remember that if you take out equity and turn it into a rental, you will have to pay capital gains tax if you sell the rental and it goes off the difference in the original purchase price vs the new sell price, not the amount you owe because of the equity you took out.. I almost had to pay big $$$ to the feds but then found out if a Judge makes you sell the house like in a Divorce then you are exempt from Capital gains.
 

SKIDMARC

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I did this exact thing back in 2010. You have to remember that if you take out equity and turn it into a rental, you will have to pay capital gains tax if you sell the rental and it goes off the difference in the original purchase price vs the new sell price, not the amount you owe because of the equity you took out.. I almost had to pay big $$$ to the feds but then found out if a Judge makes you sell the house like in a Divorce then you are exempt from Capital gains.


I thought you only have to pay capital gains in CA if it over 500K? We plan on keeping the house for retirement purposes.
 

OldSchoolBoats

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Really!!!! Is there a time period associated with that law? Say I refi, and hold onto the money for say 6-8 months, then buy a house, would that be ok? This is all new to me obviously.
On the loan docs there is a question as to whether you intend to occupy the house as your primary residence. I would say at least 6 months to a year. Some brokers will tell you 90 days, but that is dicey. You will sign that doc knowing full well it isn't going to be your primary.

I know a lot of people do it, but I have seen lenders cracking down on this stuff. Just be careful.

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Ladsm

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I thought you only have to pay capital gains in CA if it over 500K? We plan on keeping the house for retirement purposes.
Not if you use it as a rental write-off. You had to have lived in it as your primary house for 2 of the last 5 years to not pay CG. My ex literally sat on paperwork letting us selling it until a week after the deadline thinking I would get stuck paying more taxes.
 

OldSchoolBoats

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There’s people that will do it. A person I kn or just bought a riverside house and havasu house while taking money from their Carson house and renting it and living in the riverside house. They closed escrow on havasu house Sunday, Monday renters moved in. I’m starting to get that weird feeling about things. Also two brand new trucks, rv, boat, and sea doos. Makes a little less than me so it boggles my mind but hey I’m not mad just a little jealous
There are a ton of brokers who will do shit like this. I am not one of them. No way I will risk my career for a few grand in commission. They can find someone else.

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SKIDMARC

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On the loan docs there is a question as to whether you intend to occupy the house as your primary residence. I would say at least 6 months to a year. Some brokers will tell you 90 days, but that is dicey. You will sign that doc knowing full well it isn't going to be your primary.

I know a lot of people do it, but I have seen lenders cracking down on this stuff. Just be careful.

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Ok, so I would need to get a loan from a lender that says I only need to live in the home for 6 months, then I would be good?
 

HOOTER SLED-

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So wait......the house that needs to be occupied as a primary needs to be the one that you are borrowing for? In other words, if someone takes out 200k on the equity they have.......then use it as a down on another home, which one has to be occupied? The new one?
 

Mandelon

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More properties = More mortgages = more positive cash flow.

I have a few rentals. I wish I would have stretched more and purchased some that I didn't move on. Over time the equity just goes up and up.

When stuff tanks a bit, scoop em up. Perfect timing isn't essential, but it sure helps.
 

hallett21

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There’s people that will do it. A person I kn or just bought a riverside house and havasu house while taking money from their Carson house and renting it and living in the riverside house. They closed escrow on havasu house Sunday, Monday renters moved in. I’m starting to get that weird feeling about things. Also two brand new trucks, rv, boat, and sea doos. Makes a little less than me so it boggles my mind but hey I’m not mad just a little jealous

He might not sleep at night either lol


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I'm thinking of doing the same, kinda, but paying off my current house and what would be my mortgage payment, just put into savings. All principal and no interest to pay out. Market will cool off and at that point I'll look for a second house. I figure rental income from the rental house would get me $200k in purchasing power towards the 2nd house. I could afford a $400k house making $21/hr + the rental income.
 
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EmpirE231

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The other thing to consider, which I don't think anyone has mentioned yet, is how recession / economic proof is your job / income flow.

That is where things get dicey! if you have a tenant skip rent a few months, usually not a big deal to cash flow that yourself......but if you hit a speed bump in your income stream, and now have to float your primary mtg + the rental....

otherwise... people do this all the time... some are very successful, some are not. It just comes down to playing the leverage / large debt game VS. the old school cash / minimum debt game.
 

SKIDMARC

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There are a ton of brokers who will do shit like this. I am not one of them. No way I will risk my career for a few grand in commission. They can find someone else.

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So I spoke with my lender, she is telling me its fine as long as you are not currently in the process of buying another home. She is also saying there is no time frame in the contract, it just says it is your primary residence at that time. If you buy another home a few months later thats no issue.
 

wzuber

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Or for A YEAR with the current Covid / rent laws in LA County.......
Exactly.....those "professional tenants" along with their attorneys who are wise in exploiting the kali rentals laws can be a real education and a painful one at that.... $$$$
they are only growing in #'s by the day.
 

Looking Glass

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So I spoke with my lender, she is telling me its fine as long as you are not currently in the process of buying another home. She is also saying there is no time frame in the contract, it just says it is your primary residence at that time. If you buy another home a few months later thats no issue.


You sure seem to either already have your mind made up or hoping for someone to agree with your thinking/hoping to jump in to Pull The Trigger:confused:

This might be interesting to see the outcome.
 

badluck

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Rentals are good when they’re good but horrible when they’re bad. I recommend borrowing now while the rates are cheap. Sit on the dp money and wait for a small correction that’s going to hit in the next 2 yrs+-. Don’t put it all down. Aways make sure to have 6 months in the bank. Cash is king in a down market. Leveraging is a gamble but you can’t win if you don’t play. If you’re near retirement play conservative. If you’re young play a bit more risky. You have time to make up for mistakes. My grandfather told me to buy dirt. They stop making that shit yrs ago. Good luck to you in whatever direction you go.
 

TITTIES AND BEER

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I did it to buy a little place got the loan then the asshole sold it out from under me ( he said a handshake was all he needed) Fuckn Asshole I have to keep the loan for at least 2 years or pay penalties so here I set .
 

just_floatin

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If you are making good money, why not just save up for the down payment (or borrow from family) and then purchase the second home? 🤷🏼‍♂️ Interest rates on second homes are still cheap and you are not putting yourself at risk by abiding by the contract. Keep your LOC on home one as your emergency fund should there be an income loss, tenants do not pay, or you encounter two major home repairs at the same time. Oh and it will happen so plan and budget for it. The more work you can do yourself the better as a landlord.

As soon as you pay off house one focus on house two. Dave Ramsey refers to this stage as gazelle intensity which takes time, financial discipline and full engagement. Engaged means sacrificing everything from nice dinners, vacations, toys and new cars among the other joys in life. An example is my newest vehicle is a 2002 Chevrolet Silverado. My other vehicle is an 02 Toyota. Luckily I was a certified mechanic (two years at Arizona Automotive Institute) early in my career so I just prefer older vehicles I can service not to mention 30 dollars per month per vehicle full coverage insurance.🤓 Discipline.

Keep your debt to income in the low-low percentile and hire a great California CPA that knows rental tax laws like the back of their hand. If they are landlords even better. The CPA will be your best friend and a call you make when considering future investment properties. No risk no reward sounds like you. Tweak your plan a tad and go for it. Just be cautious of mortgaging house one for house two during these unprecedented 😆 times.
 

boatpi

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Back in 2008-2010 we tried to buy more houses in Vegas. Feds had hard limits then and 30%
down. I could have have 12, ended up with 7, can’t complaint all are up 300%and collected
Rent since then.

i
Back then I was paying $105k for a 2,100 sq door 5 year Old house.
 

wzuber

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Anybody remember the movie Pacific Heights? That would be a great one to watch to help prepair for this endeavor. Lol
Micheal Keaton was awesome in that.
 

TimeBandit

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You're 40, so you want a 20 year mortgage, max. Nobody wants a payment in retirement, nobody can retire with a payment. You need a REFI anyway to get rid of the high interest payment, so there is that.

$3,000. per month mortgage? Plus Insurance and property tax... it does not sound like the 1400 foot house would break even when rented... and when vacant?? ouch.

I have moved up in house a few times, I kept my last house as a rental and cash flowed my way into my current house. My rental currently cash flows about $18,000 per year, I'll have it paid off in 18 months then it will cash flow $30,000/year (If the economy holds together that is). I could easily make both house payments if my rental was vacant, which it never has been, the current renter has been there almost 5 years with no sign of moving.

So make sure the math works. The older I get, the more cautious I become.
 

TimeBandit

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Back in 2008-2010 we tried to buy more houses in Vegas. Feds had hard limits then and 30%
down. I could have have 12, ended up with 7, can’t complaint all are up 300%and collected
Rent since then.

i
Back then I was paying $105k for a 2,100 sq door 5 year Old house.

Invitation Homes now owns 50,000 single family homes, they bought like crazy during those years and boy has it paid off. 50,000 homes!
 

boatpi

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I know the couple on Flipping Vegas. He owns 190 houses in Vegas!
 

Mandelon

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I know the couple on Flipping Vegas. He owns 190 houses in Vegas!
Is he really that big of a DBag in person? We did a rehab for the Flip or Flop couple, but didn't get on TV.
 

badgas

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Thing to note here is - you bought an HOA property, thats what that is.
I won't buy HOA property anywhere.

Whats the cost of both houses?
I had a place in parker for (I think15 years?) everything was cheaper, but it didnt appreciate like my property in LA either.

Of course it's a risk, its also historcially one of the less risky ways to generate wealth.

You are correct

I did buy a place with an HOA, My mistake and will not do it again.
 

SKIDMARC

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I think I’m going to wait it out a bit. Most likely refi to get a good rate not take any money out. My biggest concern right now is the state the market. Rentals are risky right now and there is not much out there to purchase. Going with my original plan save money. But going to do some investing. I might also sell in a year or two. Take the money and buy a new home and also a rental or two. Fingers crossed.
 

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One of the reasons we bought our current house is because it had a granny flat that we knew would make a perfect rental. It needed a total remodel which we spent $30K on. The renters have paid that all back in less than 3 years. For a single person the place is great, fenced yard, big living area, all new everything in about 900 sq ft. My wife is a nurse and has marketed the place to traveling nurses only. They are always employed, they usually stay for 13 or 26 weeks, they aren't home much, they are responsible and generally respectful. It takes a lot of the pain out of doing a proper vetting of a possible new tenant. It works for us anyway.
 

J DUNN

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My house in CA is worth $1.2M, currently, we'll see how long that lasts. I have many diversified investments set up for retirement; savings acct., cash, stocks, business equity, 401K and investment properties. These all have very small equity but they're growing. I don't use credit cards and I'm cash poor by paying all my salary to my current house mortgage on a 15 year that I've paid down to 10 years left.

You know what they say about RE, Location, Location, Location. That doesn't always refer to High values, in my case it applies to lower values/cheaper entry. Food for thought. My house in OC is that $1.2M, supposedly. I saved up enough to put a down payment on an 8 unit apt complex, out of state in a much cheaper market for $1M, I don't take any cash from it and just keep all money going to pay the loan and pay for renovations. Rents started at $900 per month and the apt's were/are THRASHED! Remodeling them one at a time and bumping rent up to $1200 per month on each of them. Tenants are paying the upcharge happily and are very happy with the new living conditions. It's no cash cow but it's paying for itself and will one day pay for my living expenses.
 

J DUNN

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I did it to buy a little place got the loan then the asshole sold it out from under me ( he said a handshake was all he needed) Fuckn Asshole I have to keep the loan for at least 2 years or pay penalties so here I set .

Sometimes you can pay 95% of the loan back right away and just keep the 5% for 2 years so you pay less, WAY less, interest and no penalties. I'm sure you've thought of this but just thought I'd share what I've seen done before.
 

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Sometimes you can pay 95% of the loan back right away and just keep the 5% for 2 years so you pay less, WAY less, interest and no penalties. I'm sure you've thought of this but just thought I'd share what I've seen done before.
That’s what we did took out 2000$ and just paying like 400 $ a month interest is way low we already signed the papers before he fucked us and couldn’t get out of it I just don’t want any bull shit on our credit.
 

LargeOrangeFont

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My house in CA is worth $1.2M, currently, we'll see how long that lasts. I have many diversified investments set up for retirement; savings acct., cash, stocks, business equity, 401K and investment properties. These all have very small equity but they're growing. I don't use credit cards and I'm cash poor by paying all my salary to my current house mortgage on a 15 year that I've paid down to 10 years left.

You know what they say about RE, Location, Location, Location. That doesn't always refer to High values, in my case it applies to lower values/cheaper entry. Food for thought. My house in OC is that $1.2M, supposedly. I saved up enough to put a down payment on an 8 unit apt complex, out of state in a much cheaper market for $1M, I don't take any cash from it and just keep all money going to pay the loan and pay for renovations. Rents started at $900 per month and the apt's were/are THRASHED! Remodeling them one at a time and bumping rent up to $1200 per month on each of them. Tenants are paying the upcharge happily and are very happy with the new living conditions. It's no cash cow but it's paying for itself and will one day pay for my living expenses.

Nice work. I’m on my way to doing the same thing. Need another couple duplexes. A tri or quad plex and I’ll be in OK shape.
 
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