To answer my own question, we will use an example.
Let’s say you’ve owned a home in Lehi, Utah from 2014-2019. The average price on homes went from $247,000 to $343,000, which would give you about $96,000 to work with. (Obviously, how much you put down, what your interest rate was, and other factors could change these, but that gives us a rough idea.)
You have two paths to move forward to re-invest that equity.
1-Sell your house. You get the most cash out of the house and can split the funds. Use one portion as a down payment for your next home and use the other portion of funds as the down payment for an investment property rental. Mountain America has two competitive financing options, one where you pay 10% down, the other where you pay 15% down.
For a $330,000 home, $50,000 would be your 15% down payment. (I won’t go into all the details here, but there’s good evidence that homes around $330,000 in Utah county work as a kind of sweet spot for rentals- balance between what you spend and what you can get back in rent, plus minimizes wear and tear on the home, etc. We will save that for another discussion!)
2-Keep first home as a rental. You can do a cash out refinance to buy your next property (where you take out a loan against your first home to get the cash to buy your next home). You move into the new home and leave the first home as your rental property. Now, whether your current home would make a good rental depends on the area you live in, its size, and many other factors. Sometimes, buying a home just for rental purposes makes more sense, and sometimes your original home makes a better rental.
So, which path will be right for you? I’m available in an advisory position- send me your home and your numbers, and I can advise you on the pros and cons for each path and you can see which one will get you ahead.
Any questions? I’m always available to be asked!