I've just gone through a very similiar situation.
I currently can get a 4.375% 30 year fixed loan on my residence which is worth 500k.
Where did you get this? Best I could do was 4.5 with 1/2 pt at BOA with 200K cash out.
Watch out for the purchase price + improvements + 100K interest limitation.
My thought were that we might be in for high inflation and this would be cheap money in the long run.
My thought exactly, but I don't believe "might" is the correct description. I think "will" is correct.
Alternatively I could borrow on any of several investment properties but the interest rates would be in the 5.75% range.
While it will provide a better tax benefit, helping to reduce the profit each year, be careful that they still cash flow with a decent monthly reserve. This additionally does not have the purchase price + improvements + 100K interest limitation.
Run the numbers, you may be able to do both. Up to a certain point. My wife would not let me do both.
Am I crazy or does this make any sense. I would probably use the money to purchase a couple other investment properties or invest for inflation protection.
I would not go for more rental property at this time. When things get worse, fewer renters will be able to afford rents. Right now I'm seeing more cars parked on the streets around my rentals because families are doubling up. Just recently I had double families trying to rent my SFH. And things are only bad now with 10% unemployment. Wait until they get worse.
I would put the borrowed funds in inflation hedges even though they pay no short term return and are higher preceived risk. Then when interest rates become high double digit because the Fed will fight inflation with high interest rates, I would switch into long term T bonds or muni's. When interest rates hit these values, property values will be bottoming out, so you can choose to split some of the funds into more rental property. This is just my risk tolerance level. Yours is probably different.
My current portfolio is in the mid 7 figures. According to my analysis my no mortgage rental properties return 6-8% and a 50% leveraged property would boost that to 11-12%. I'd also get a mortgage interest deduction on my taxes but my tax rate is pretty low at 15% or so.
Additional interest, both home and rentals, will help keep your rate lower when the Fed tax rates increase to reduce the deficit.
Just my thoughts.