Refinancing Real Estate Investments 898347519459

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Thinking about consider refinancing real estate assets rather than trying to sell them? Perhaps you've owned a rental property for decades, you've paid down the mortgage, the worthiness is up, and you desire to cash flow profit on that fairness. You'll do easier to refinance. Here is why.

You will find two difficulties with selling. First, selling means spending a large capital gains tax. You can avoid this if you reinvest by way of a 1031 exchange, however the point is that you want your money, right? Second, you'll be giving up your inflation-indexed retirement plan. As rents go up more income is generated by a good rental property.

Replacing Real Estate Assets Is Way Better

If you refinance, you will get much of your gain from the property, without paying a penny in taxes. You see, borrowing money is not a taxable event. Simply take your mortgage proceeds and spend them however, you want, and still keep your accommodations. Does not that sound much better than losing a big piece of one's money to taxes?

Now, let us look at a good example. We'll suppose you have owned a little apartment building for quite some time. Let's say you bought it for $340,000, with a down payment of $80,000. Interest rates at the time were at 9.5%, giving you a payment of $2,106 monthly on the total amount of $260,00 (30 year amortization).

The house has become worth $560,000, and you owe $220,000. Your hard earned money flow is just about $2000/month. Now, how do you get at a number of that value? If you sell, you will quit the money, AND pay a big the main income in taxes. What are the results if you refinance?

That might be $392,000, In case a bank will loan you 70% of the value. Pay off the first mortgage, and you are left with $172,000. You may spend it any way you want, and no taxes are due.

It gets better still, specially when interest rates are low. Your new payment will soon be $2295, if the new interest is 6.5%. In other words, you get $172,000 to pay any way you want, and you still have over $1,800 cashflow each month, from an inflation-indexed pension plan.

Here's a straight better scenario: Spend $50,000 of the loan for high-return updates to the home, such as carports and a room, and enhance the rents. You might have $122,000 remaining to pay in whatever way you want, AND have higher cashflow than before! Isn't that sound better than selling your retirement plan? When you want that cash, consider refinancing real-estate assets.