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Ask R. Greg Paszkiewicz Your Own Question
R. Greg Paszkiewicz
R. Greg Paszkiewicz, Advisor
Category: Finance
Satisfied Customers: 357
Experience:  Finance degree, worked 5 years for investment advisory firm
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Investing advice for rental property

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Is it a good or bad decision to use home equity funds to purchase rental income property? I am closing in on retirement and do not have adequate retirement accounts to afford retirement. I have around $150K in home equity that is just sitting there and doing nothing to earn money. I was thinking about taking a second mortgage and buying several condos, furnish and rent as corporate or executive rentals. Would this be a sound business venture? Stocks have already killed me over the past 5-8 years and I do not want to go that route. Property on the other hand is always going up in value, usually in double digit percent increases annually.
The answer is it depends (which is the answer to almost every financial question). How much would you have to pay for the properties? What could you rent them for? What % of the time could you keep them occupied for? Would the tax benefits of rental property ownership help you? A lot depends on the real estate market(s) in which you would be looking, now may be the perfect time to buy rental condos in Olympia but a terrible time somewhere else. I think owning rental property over the long haul is usually a decent investment but i think you are in danger of making the same mistake everyone made with stocks at the end of the '90s. Everyone pretty much decided stocks always go up and that they would pay any price to own them. I think there are a lot of people who feel the same way about real estate now, its a herd mentality that migrates to whatever is hot at the moment. I would be very cautious about chasing real estate in a hot market.
Customer: replied 11 years ago.
Reply to R. Greg Paszkiewicz's Post: Thank you for the insight. I guess the hidden question is about using my home equity and making it work for me. Would it be a good idea to establish a home equity line of credit and invest into real estate, not just condos but perhaps in some sort of a joint venture where I am an investor? It would seem to me that I am losing out with my funds tied up in equity and making 0% return. The stock market is not the way for me as I lost a very large sum of dollars in my 401K and after-tax retirement fund and still remain at a negative 6 figure amount six years after my investment. Thanks again.
You aren't really earning 0% on your home equity, since your home has probably appreciated at a decent rate. I'm not sure about going the home equity line/investor route since it creates a claim on your home which is tied to the performance of another investment plus it will have to make a higher return than the home equity rate to make any money for you and most likely you will be paying the HE interest up front and not getting the benefits of any investment til much later. I would be more inclined to take a small amount of HE (if necessary) to make down payments on a property or two and finance the vast majority of the purchases with mortgages on the corresponding properties. I would segregate the investments from your personal assets, probably in an S Corporation. I would really take the time to understand the market your going into or find someone who does who can help you, i wouldn't just jump in blind. Finally, I think you should re-think your anti-stock bias. I know a lot of people got burned the last few years, i don't know the facts of your case so I can't speak to that but i think it is important to have a diversified approach to your investments. Just like you shouldn't have all of your money in Sun Microsystems, Microsoft, and Intel you shouldn't have all of your money in Auburn, WA real estate. It's just too much of a risk to take with your net worth. Hope this helps some.


           Greg
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Customer: replied 11 years ago.
Reply to R. Greg Paszkiewicz's Post: Great feedback with a good view.

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