Refinancing and Investment in Real Estate
Whether refinancing your mortgage is a good thing or a bad thing, borrowing rich dad poor dad terminology depends on whether you know how to use debt. Debt, when used correctly with adequate cash reserves built up to withstand months in which you cannot find tenants for his property, will allow you to own more property than you can on your own. Real estate moguls like Donald Trump used leverage and you should too.
This article assumes you’ve paid off your first property you’re staying in and partially paid off your second property and are looking to refinance your real estate investment to get some cash out to buy a third property and highlights three good reasons why you should.
Reason #1- Monthly Cash Flow
I know of some people who are quite happy with a single fully paid for property, but there is a problem, they are asset rich but cash poor. This means that they have no cash flow but have a lot of money locked up in their real estate holdings. By taking some money when you refinance your loan on your second property, you can invest your money in a third property and increase your monthly cash flow.
Reason #2- Lower interest rates
Spend some time looking at interbank interest rates and the Federal Reserve rate over the years to see how it’s doing, and then aim to refinance in years when interest is lower. This would result in you having to spend less money overall and saving a lot of money. Now, with lower interest rates, take the extra cash flow and put it away and then, as above, use it to invest in other real estate.
Reason #3- Combine properties
To get your real estate investing up to speed, refinance both properties and take the money and buy a third property. Keep in mind that you should have savings built into your calculations as mentioned above to protect against a market decline in rents or the inability to find tenants. After your properties increase many times over, you may want to take the advice of the gurus and then start combining the total value of all your properties and then buy a larger commercial building.
Bottom line, refinancing frees up much-needed cash that you can use to purchase other real estate to generate even more monthly cash flow. Take massive action today and spend time writing your investment strategy down on paper and implement it and you will start to see your real estate investment portfolio start to rise.
By Joel Teo 2006 All rights reserved