I currently live in an urban neighborhood that is appreciating between 12% and 15% a year. I have been in the house for just over two years, but my family has outgrown it. I would like to purchase a new house to live in and keep my old house as a rental for at least a few years to take long term advantage of the great neighborhood appreciation. I would not have money for a down payment, but I do have a significant amount of equity in my current home. How do I use that equity as security against a new mortgage?
Tom,
It might make a lot of sense to just sell the house. Your gain would not be taxable. Then you could use your cash to buy a new residence and a rental property. You would then have a stepped-up basis in the rental, which would give you more depreciation and a smaller gain when you sell it.
And I suspect you could find a better rental property than your present residence. For example, you might want to look at duplexes. Or maybe a single family fixer or foreclosure that you could buy below market.
I can’t believe the appreciation you speak of is limited to the neighborhood you are now living in. You might also want to consider that 12% to 15% appreciation is not normal and will not continue indefinitely.