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Ask Dave

Renting Out A Paid-For Home?

Mike's debt free and has a few rental houses and wants to know how to finance the house he and his wife want to build.

QUESTION: Mike is completely debt free and has three houses that he rents out.  If he rented out the house that is paid for, would it be a good idea to finance the house he and his wife want to build?

ANSWER:You should sell the paid-for house in order to pay cash for the one you’re building.  Then, when you don’t have a house payment, you can build up wealth and pay cash for another rental property.

The same question reversed would sound like this: if you had your new house built, would you borrow on it to purchase a rental house in the neighborhood you live in now?  The answer should be “no” because you don’t want debt. 

You should build wealth slowly and take the risk out of it.