Personal Finance Question
I recently bought a home that is desperate need of TLC. I bought the home with a 100% financing; 20% 30-year fixed, and 80% interest only to roll into a 3/1 ARM in 2 years.
The property is also zoned R2, so I plan on having a small apartment built on top of the detatched garage. I am sure I can increase the value of the home by at least 25-30% in the next year or two in my off time and with the money I am saving with the Interest only loan.
The question I have is concerning my exit strategy. I am currently planning on selling the place in 2 years, but will look over the ARM when it comes effective to see if I wish to state at those future rates. If the rates are too high, or if converting to a conventional loan would also be too high I will sell.
However, since this place will be my primary residence for the next 2 years I may decide to hold on to the property, cash-out the equity (or get a HELOC), and buy another place to produce income.
The main question I have is, is there a way to convert equity into cash flow without putting the money into another house?
I know, on these boards that is sacrelige to say. I am just wondering if I could use the built equity to lower the mortgage payment even if interest rates are higher than they are now (which in 2 years they most certainly will be).
Or, would I be better off using the money to generate a passive income through further REI while staying with the first home?
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