Good news!  You can leverage the equity in your home to buy rental property.

Depending on the loan program and type of property that you’re buying, you may need a down payment and also cash reserves.

You Have Two Options:

1. Your first option is to refinance your home.  Refinancing may be the safest way to acquire the money you need to invest in property. It makes sense if you have a lot of equity in your home and a higher interest rate on your mortgage; you can take the cash out and you may wind-up with a better interest rate.

2. Your second option is to get a home equity line of credit. If your current mortgage has a nice low interest rate, or you have been paying on your mortgage for years, you may consider getting a home equity line of credit.

The disadvantage to a home equity line is it is usually an adjustable rate mortgage based on the “prime rate,” which eventually will go up as the economy does better and inflation kicks in. 

However, the good news about a home equity line is that you pay on what you owe, and you pay the interest only for the first ten years.  After that, you pay the principle plus the interest.

As the cash flow on your property improves you can pay that debt down, reducing the monthly payment. If you need the money again, for improving the property as an example, you can draw that money back out during the “draw period.”   Please check with your CPA on whether you can deduct the interest on this loan as there are limitations.

Another way to borrow for a new property is against your 401k plan or other investment vehicles. See my article on borrowing from your 401k.

Athena Paquette