Our home is worth about $230,000, though we owe about $260,000. If we refinance, we would need to put down at least $70,000 to get rid of our private mortgage insurance payments. We could then use the remaining $80,000 as a down payment on a rental property.
Is it better to do this or to just put it all toward the primary residence and forget the rental idea? We really appreciate any advice!
-- Brandon Bungalow
Is that $150,000 a one-time gain, or do you expect an even greater return as your business grows? If you expect it to continue, I'd suggest using part of your profits to set up a retirement plan for your business -- that is, if it doesn't have one in place already.
Accumulating rental property may not be your best move. As a busy small-business owner, you may not have the time, energy or inclination to be a successful landlord. You already have more than $260,000 invested in your local real estate market. Do you really want to double down? I wouldn't.
As an alternative, you could invest in REITs, or real estate investment trusts. Those are professionally managed, and they could become part of a diversified investment portfolio.
It's true that a conventional first mortgage will require private mortgage insurance, or PMI, if the loan-to-value is more than 80 percent of the home's value. However, you may be eligible to refinance using the federal government's Home Affordable Refinance Program, or HARP, without bringing $70,000 in cash to closing.
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