Refinancing Real Estate Investments

De BISAWiki

---

Edição de 06h44min de 9 de maio de 2013

Why should you consider replacing real estate assets in place of trying to sell them? Maybe you've owned a rental property for years cash flow, you have paid down the mortgage cash flow management, the value is up, and you wish to cash in on that equity. You will do safer to refinance. Here's why.

There are two problems with selling. First, trying to sell means paying a sizable capital gains tax. You can prevent this if you reinvest through a 1031 exchange, but then the purpose is that you want your money, right? Second, you'll be giving up your inflation-indexed pension plan. As rents increase more income is generated by a good rental property.

Replacing Real Estate Assets Is Way Better

If you refinance, you will get a lot of your gain out from the property, without paying a dollar in taxes. You see, borrowing money is not a taxable event. Just take your mortgage proceeds and spend them however you want, and still keep your accommodations. Does not that sound a lot better than losing a huge piece of your equity to taxes?

Now, let's look at an example. We'll suppose you have held a small apartment building for quite a while. Let us say you bought it for $340,000, with a deposit of $80,000. Rates of interest at the full time were at 9.5%, giving you a payment of $2,106 monthly on the total amount of $260,00 (30 year amortization).

The home is now worth $560,000, and your debt $220,000. Your cash flow is about $2000/month. Now, how can you reach some of that value? If you sell, you will give up the money, AND pay a huge area of the income in taxes. What are the results if you refinance?

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

It gets better yet, specially when rates of interest are low. Your new payment will soon be $2295, if the new interest rate is 6.5%. Put simply, you get $172,000 to spend in any manner you want, and you still have over $1,800 cashflow each month, from an inflation-indexed pension plan.

Here's an even better scenario: Spend $50,000 of the mortgage for high-return updates to the property, such as carports and a room, and improve the rents. You might have $122,000 left over to spend in any manner you want, AND have greater cashflow than before! Isn't that sound much better than selling your retirement plan? When you want that money, consider replacing real estate assets.

cash flow