Agree with prior posters who suggested a higher ROI for a rental property. At the least, it should be cash generative, but the hurdle rate (given what you can get in short Treasuries etc.) is certainly challenging!
But my experience with this has been a little different.
Our primary home (VHCOL area, northeast) became our investment property when we moved. That was >10 years ago.
We then began putting a little extra away each month with the rental payment to pay down the mortgage as the rental $ was in excess of the mortgage payment, tax, insurance etc. The appreciation of the asset has been meaningful in this time period.
About 4-5 years ago, we rolled what was left on this mortgage into a HELOC. While we *could* pay off the mortgage with other assets (i.e. use our vanguard MM funds) our concern was the potential for trapped liquidity if we did this, and the HELOC was my chicken-little way of having my cake and eating it too - i.e. the net to us was the same, and if I wanted to fully pay it off, I could - OR - if I wanted to tap the line to make other higher returning investments/needed some liquidity (not quite a full-on cash refinance, but the same rough idea), I could.
We ended up leaving the HELOC drawn (at the original balance) until rates began to rise, which began to eat into our return, and given other sources of liquidity that were in place (with earnings, savings etc.) we went ahead and paid the line down/off with $ from our vanguard MM funds.
The line remains in place (undrawn) and will for another 2 or 3 years. I guess I could tap it if I want (or if rates come down, do a cash out refinance), so there is always that option. But given the cost of funds (>7% now), that’s less compelling.
m_b
But my experience with this has been a little different.
Our primary home (VHCOL area, northeast) became our investment property when we moved. That was >10 years ago.
We then began putting a little extra away each month with the rental payment to pay down the mortgage as the rental $ was in excess of the mortgage payment, tax, insurance etc. The appreciation of the asset has been meaningful in this time period.
About 4-5 years ago, we rolled what was left on this mortgage into a HELOC. While we *could* pay off the mortgage with other assets (i.e. use our vanguard MM funds) our concern was the potential for trapped liquidity if we did this, and the HELOC was my chicken-little way of having my cake and eating it too - i.e. the net to us was the same, and if I wanted to fully pay it off, I could - OR - if I wanted to tap the line to make other higher returning investments/needed some liquidity (not quite a full-on cash refinance, but the same rough idea), I could.
We ended up leaving the HELOC drawn (at the original balance) until rates began to rise, which began to eat into our return, and given other sources of liquidity that were in place (with earnings, savings etc.) we went ahead and paid the line down/off with $ from our vanguard MM funds.
The line remains in place (undrawn) and will for another 2 or 3 years. I guess I could tap it if I want (or if rates come down, do a cash out refinance), so there is always that option. But given the cost of funds (>7% now), that’s less compelling.
m_b
Statistics: Posted by mass_biker — Tue Jan 16, 2024 6:14 am — Replies 7 — Views 634