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Started By
Message
Refinancing Home to Diversify
Posted on 12/6/14 at 11:42 am
Posted on 12/6/14 at 11:42 am
I purchased a home in a not yet gentrified piece of property in the inner loop of Houston several years ago.
The combination of the neighborhood improving and the general explosion of Houston real estate prices has caused the valuation of my home to increase to the point where my 90% LTV mortgage is now closer to 50% LTV
The value is high enough that my appraisal home equity value is a significant portion of my net worth. I also work in the energy industry.
Given those two things, I feel I am too heavily levered against the energy industry and I want to diversify.
Rather than selling my home and capturing that equity directly, my thought was that I would refinance to an 80% LTV and invest the proceeds. I would still be long the same amount on Houston real estate, but overall my assets would be more diversified.
I guess in the simplest terms I look at is selling my 100% in the money call and buying a 25% in the money call and investing the premium I collect in something else.
Rates are about 1/4 point higher than where my original mortgage was, so not significantly higher. A mortgage would cost a point, but selling the home would cost 6 points.
Would appreciate any thoughts on this strategy, or any alternatives that may be better.
The combination of the neighborhood improving and the general explosion of Houston real estate prices has caused the valuation of my home to increase to the point where my 90% LTV mortgage is now closer to 50% LTV
The value is high enough that my appraisal home equity value is a significant portion of my net worth. I also work in the energy industry.
Given those two things, I feel I am too heavily levered against the energy industry and I want to diversify.
Rather than selling my home and capturing that equity directly, my thought was that I would refinance to an 80% LTV and invest the proceeds. I would still be long the same amount on Houston real estate, but overall my assets would be more diversified.
I guess in the simplest terms I look at is selling my 100% in the money call and buying a 25% in the money call and investing the premium I collect in something else.
Rates are about 1/4 point higher than where my original mortgage was, so not significantly higher. A mortgage would cost a point, but selling the home would cost 6 points.
Would appreciate any thoughts on this strategy, or any alternatives that may be better.
2
Posted on 12/6/14 at 1:34 pm to Turbeauxdog
Wouldn't you be even more leveraged in the real estate market and the hope that the energy sector does well to continue to inflate the property values in Houston? Maybe I'm looking at this wrong, but it seems like you are doubling down not divesting.
Posted on 12/6/14 at 2:47 pm to TigerDeBaiter
You're correct that I wouldn't reduce my overall exposure to the houston market, but I would reduce its percentage of my overall portfolio.
Also, you are correct that I would be leveraging that exposure, but I would keep 20 percent of equity. I think that would suffice for all but SHTF scenarios. Under SHTF scenarios, I may not be able to keep the home anyway and at least I would have captured most of the profit.
Do you have any other suggestions. I would prefer not to sell my home, but if that's the best solution, so be it.
Also, you are correct that I would be leveraging that exposure, but I would keep 20 percent of equity. I think that would suffice for all but SHTF scenarios. Under SHTF scenarios, I may not be able to keep the home anyway and at least I would have captured most of the profit.
Do you have any other suggestions. I would prefer not to sell my home, but if that's the best solution, so be it.
Posted on 12/6/14 at 3:31 pm to Turbeauxdog
My point was, while you may be at 20% LTV now, if the housing market cools off there (which I personally think it will- but nobody knows) you could end up underwater. You could always stay put. 
just my two cents
just my two cents
Posted on 12/6/14 at 6:01 pm to TigerDeBaiter
Oof, isn't this exactly the sort of thinking that landed us in a fiscal mess not so long ago? If you want to diversify, sell it. Don't borrow on an inflated paper value simply to spead your assets around. If the market is white hot, sell. Live in something smaller/cheaper/find another gentrifying area. Use your cash out to diversify.
Posted on 12/6/14 at 6:34 pm to hungryone
I understand where you are coming from, but I'm not doing this so I can buy a Range Rover. I'll invest in the economy so I'm tied to its performance.
Posted on 12/6/14 at 7:13 pm to Turbeauxdog
quote:
I purchased a home in a not yet gentrified piece of property in the inner loop of Houston several years ago.
The combination of the neighborhood improving and the general explosion of Houston real estate prices has caused the valuation of my home to increase to the point where my 90% LTV mortgage is now closer to 50% LTV
The value is high enough that my appraisal home equity value is a significant portion of my net worth. I also work in the energy industry.
Given those two things, I feel I am too heavily levered against the energy industry and I want to diversify.
Rather than selling my home and capturing that equity directly, my thought was that I would refinance to an 80% LTV and invest the proceeds. I would still be long the same amount on Houston real estate, but overall my assets would be more diversified.
I guess in the simplest terms I look at is selling my 100% in the money call and buying a 25% in the money call and investing the premium I collect in something else.
Rates are about 1/4 point higher than where my original mortgage was, so not significantly higher. A mortgage would cost a point, but selling the home would cost 6 points.
Would appreciate any thoughts on this strategy, or any alternatives that may be better.
I like where your head is. Obviously, it depends what you intend to diversify into, but it makes sense.
Has the market softened at all with oil in the 60's?
Posted on 12/6/14 at 7:54 pm to Big Scrub TX
Not yet but I could see it happening soon
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