One of the easiest and safest ways to get started in real estate investing is to do it when you are ready to sell your existing home and buy a new one. I propose that you just refinance your present home, instead of selling it, and use the money from the refinance as a down payment on your next house. Now, you own two houses and you can just turn your old house into a rental property. It’s as easy as pie.Refinancing is easier than purchasingRefinancing is similar to the process you encountered when you closed on your first mortgage. It requires an application, credit check, new survey and title search, as well as an appraisal and inspection fees. It’s actually much easier and quicker to refinance a property than it is to purchase one.When I first refinanced my townhouse to get money to purchase another house, I was a little nervous. I thought, “Is this going to create too much a financial burden for me to pay two mortgages at the same time?” But, it turned out that I never had to pay two mortgages at once. Avoid paying two mortgages at the same timeWhile we were going through the 6-week closing process to purchase our new house, my wife and I were busy preparing our “old” townhouse to rent out. The same day that we closed on the first house, we put the “For Rent” sign up on our townhouse. One week later, we had tenants renting the townhouse. The monthly payments of the tenants covered the cost of the mortgage, taxes, insurance, utilities, and the $40 left over was profit for my wife and me.Choose the safe and easy pathThe beauty of turning your primary residence into a rental house lies in its ease and relative safety. On the other hand, if you were to buy a rental property without using this technique, you might spend a couple months making repairs before you could move some tenants in. In that case it could create some economic hardship because you would be paying two mortgages at the same time. It’s like the difference between taking a small jump over a little stream verses taking a giant leap over a wide river. I prefer to keep my shoes dry and take the small jump.Cash-out mortgage refinancingCash-out refinancing involves refinancing your mortgage for more than you currently owe and pocketing the difference. If you have been paying down your mortgage for some time, then the principal is likely to be substantially lower than what it was when you first took out your mortgage. In addition, the value of your home will likely increase in value over time, which will further increasing your equity.This double build-up of equity (through paying down your mortgage and the increased value of your house over time) will allow you to take out a loan that covers what you currently owe on your home, and a little extra. The extra that you take out when refinancing is used for the down payment on your next house.Turn your home into a rental property for economic securityTurning your home into a rental property is a great way to establish a new income stream, and when tight economic times hit, we can’t have too many of those.
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