Using the Home Equity for Investing in a Second Home

21 November 2019
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Category: Real Estate
21 November 2019, Comments: 0

One of the primary reasons people look to buy a Southern California home is that they want to acquire assets. In all logicality, if you’re going to pay to live somewhere, you might as well pay toward not having to spend forever. You can’t achieve this feat by renting. 

Now, when you have a mortgage on a property, you don’t own the house outright. However, what you paid toward the principal can serve as a line of credit. If you have home equity, you can even use it toward purchasing another property. Here is how.

Why Use Home Equity to Buy a Second Home?

Unlike purchasing the latest smartphone or the hottest new fashion, buying a house pays you back. It’s a long-term investment and can set you up for quite a profitable future. However, we’re living in the present, and that profitable future isn’t today. 

Just because you’re not swimming in millions just yet doesn’t mean you are broke. A good portion of your money may have gone toward paying down what you owe the bank on your current property. Thanks to this investment, you can now start to reap the benefits of owning assets. 

There are many reasons to use home equity to buy a second home. Perhaps you want to invest in a rental property to make a few extra bucks? Maybe you would like your children to move closer to you? Whatever the case may be, if you have equity, you have a way to buy a second home. 

Home Equity Line of Credit

The best way to leverage your house toward buying another property is by accessing a Home Line of Credit (HELOC). A HELOC allows you the money necessary to put a down payment on a new property. 

Most interest rates on HELOC run between 3% and 4%. Therefore, this type of loan is competitive to current mortgage market prices. In some cases, A HELOC interest rate might be even better!

What to Consider When Using HELOC for a Second Property

Is a HELOC for a second property right for you? There’s only one significant factor to take into account. You need to be positive that you can pay on both loans.

If you are using the second property as a rental, make sure you can cover the insurance and taxes with the rent you will be pulling in. You want to always cover the minimum on your second mortgage. However, if you want to pay the mortgage on your second home down quicker, you’re going to have to cover the minimum and a little extra. Do your due diligence and find out if you are purchasing a house that’s a good deal and easy to rent.

Also, make sure you talk to your accountant. Real estate taxes are excellent deductible options for landlords. See how much you can write-off on this second property. That way, you can maximize your profits and pay off all your investments much quicker.

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