| Wlakiz said: ... if you guys have taken out a mortgage before you would understand the concept. Lets say you borrow $300k from the bank to buy a home . In the bank's perspective, they are happy because they get free money from charging you interest rate, and you are happy yourself because you get to live in a new house or w/e. With a stroke of luck, you win a lottery and you get $70k. You can either put that money into the first mortgage and cut your amortization period by 10 years or you can do something smarter and use that $70k to put in a second down payment and get a second mortgage. Whoa whoa, wait you say, you're just going into deeper debt, because you have two mortgage to pay now! Yep, that's true but you see when I get a new home I can rent it out and use the rent to pay the mortgage, so basically my asset doubled and I pay the same amount as before. |
Like many financial decisions there are not necessarily right and wrong ways to go, but to understand the markets and what you are getting yourself in to. In your example the critical aspect is stating "rent out the second home" as if it is a formality. Obviously markets vary region to region, but unless you're confident can have reliable tennants this proposition can be very risky. I knew someone who did exactly this, and it worked great for a few years, and then 2008 happened and suddenly they had an asset they could not offload unless they were willing to take a heavy loss and no income to pay the second mortage. It sat empty for months until they slashed rental rate by a third just to get bodies in there. My point? What you are suggesting can work out great, but it hinges on variables that are not set in stone and could potentially ruin you.
My advice? What is the rate on your mortage and do you think you can invest your money at a better rate of return than that? If so, go for it, post I quoted is possible avenue. If not, do the conservative thing and give yourself breathing room by paying down your mortage.
I'm not arguing, just giving greater context I hope to your valid point.
On Sony...yeah I am not touching that stock anytime soon.
