I want the brain trust's opinion on an investment scenario I am considering.
My wife and own our first home as a rental that provides a decent cash flow, and a tax deduction through depreciation. We purchased a new home 14 months ago in an appreciating area with a good interest rate. Our new property has significantly increased in value over the past year, and I want to tap into the equity to buy another rental property.
I am considering a cash out refinance, or a HELOC (I have contacted my lender, and asked for them to run some numbers). I then want to use that cash to fund the purchase a small duplex in the next town over. I was the Planning Director (gasp government employee here
) in that town, and I know the rental market well. I believe that I can purchase a rental home that will immediately cash flow, and if it is a duplex then it is slightly less risky as one side of the home would nearly (if not completely) pay the mortgage, while the other side is the cash flow generator.
We have an emergency cash cushion for our first rental, and we do not tap into the cash flow money for any personal expenses. In fact, I have been letting it accrue to purchase another rental in the future. Our regular jobs pay well and cover all of our existing needs and debts including any increase in the new leveraged refinance or HELOC loan. This idea is stuck in my mind because we still have low rates, and the housing market has driven our house value up. This would save me considerable time rather than waiting until I have saved up the cash to put down on my second rental property.
What would you do? Am I crazy to further leverage my existing home for the sake of buying a rental, or is this in the 'risky but possible' category if I buy the rental property well?