ChooseFI

You're in — welcome to ChooseFI!

Keep an eye on your inbox over the next couple of weeks. We're going to send you the best of what we've built over the last 10 years — curated to help you wherever you are on your financial journey. The more you engage, the better we can tailor what we send to exactly what you need.

Home equity for second property

S
Sunset123 · · 7 replies

We have about $425K equity on a $625K home that we plan to stay in for decades (with a sub 3% interest rate). Is there a downside to taking out a bunch of that equity to buy a second property for 300-350K? We could also contribute cash.

If we rented the second home out, rent may be equal to the mortgage/taxes/insurance. But right now this equity is sitting in our primary residence doing nothing. Eventually one of our kids could move into it as we'll likely be providing financial or housing assistance (special circumstances). I feel very confident housing prices in this well-established desirable area will remain stable over time (historically they've increased).

I'm not one to take out equity to invest in stocks but the property is always physically there so it feels different. Am I off?

Share

Replies (7)

Roberto Sánchez

Roberto Sánchez

4 months ago

The only downside that I see is that you would be leveraging your primary residence at today's interest rates, and if you leverage your primary residence that is mostly not tax deductible. Yes, strictly speaking, mortgage interest is tax deductible, but the standard deduction is now so high that odds are you wouldn't get any additional tax deduction. However, if you instead take the mortgage out on the second home you intend to buy, then whenever that second home is rented out, the interest, taxes, and insurance, are all deductible as operating expenses. So, based on the information you've given, if I were in your position, I would lean towards not taking equity of the primary residence (as much as possible, though perhaps you take same to have enough for a down payment) and maximizing the mortgage on the second home.

Showing 1 of 7 replies

View all replies on Community

Join the Discussion

Sign up to reply, follow discussions, and connect with the ChooseFI community.

Choose FI has partnered with CardRatings for our coverage of credit card products. Choose FI and CardRatings may earn compensation from card issuers when a customer clicks on a link, when an application is approved, or when an account is opened. Opinions, reviews, analyses & recommendations are the author's alone, and have not been reviewed, endorsed or approved by any of these entities. American Express is a ChooseFI advertiser.

Get Brad's weekly FI strategies — free

Join ChooseFI

Start your financial independence journey

  • Access to the ChooseFI community
  • Exclusive FI resources and tools
  • Weekly actionable insights
or

Already have an account? Log in

Try searching for

⌘K to open anytime

Your FI Journey

1/3

Step 1 of 3

How familiar are you with Financial Independence?