Refinancing Real Estate Investments

Why should you consider refinancing real estate investments instead of selling them? Maybe you've owned a rental property for years, you've paid down the mortgage, the value is up, and you want to cash in on that equity. You will do better to refinance. Here's why.

There are two problems with selling. First, selling means paying a large capital gains tax. You can avoid this if you reinvest through a 1031 exchange, but then the point is that you want your money, right? Second, you'll be giving up your inflation-indexed retirement plan. A good rental property generates more income as rents go up.

Refinancing Real Estate Investments Is Better

If you refinance, you can get much of your gain out of the property, without paying a penny in taxes. You see, borrowing money is not a taxable event. Take your loan proceeds and spend them however you want, and still keep your rentals. Doesn't that sound better than losing a big chunk of your equity to taxes?

Now, let's look at an example. We'll suppose you have owned a small apartment building for several years. 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 balance of $260,00 (30 year amortization).

The property is now worth $560,000, and you owe $220,000. Your cash flow is around $2000/month. Now, how do you get at some of that equity? If you sell, you will give up the income, AND pay a big part of the profit in taxes. What happens if you refinance?

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

It gets even better, especially when interest rates are low. If the new interest rate is 6.5%, your new payment will be $2295. In other words, you get $172,000 to spend any way you want, and you still have over $1,800 cash flow each month, from an inflation-indexed retirement plan.

Here is an even better scenario: Spend $50,000 of the loan for high-return upgrades to the property, such as carports and a laundry room, and raise the rents. You could have $122,000 left over to spend any way you want, AND have higher cash flow than before! Isn't that sound better than selling your retirement plan? When you want that cash, consider refinancing real estate investments.

About the Author: Steve Gillman has invested in real estate for years. To learn more, get a free real estate investing course, and see a photo of a beautiful house he and his wife bought for $17,500, visit


Anonymous said...

Hello there! I could have sworn I've visited this blog before but after going through many of the posts I realized it's new to me.
Nonetheless, I'm certainly pleased I stumbled upon it and I'll
be book-marking it and checking back frequently!

Here is my blog - honest forex signals

Anonymous said...

Saved as a favorite, I really like your site!

Feel free to surf to my page: family cruise packages

Anonymous said...

It all ties perfect, you can impart on - is maleextra a scam search,
on other attributes. Cortisol boosts strength of your
physical structure at producing glucose from proteins; Imagine them to
be forgery. And, in a higher place all, do as they
sincerely wish to answer is maleextra a scam?

my site web page

Anonymous said...

Wirahadiraksa was previously the top financial executive at Philips's healthcare arm, while Van Houten returned after a stint as head of commercial vehicle Quarry Lease was made in 2012. Information from ESPN national correspondent Sal Paolantonio and The Associated Press was used in this report. Owners were presented the full range of plans for opening weekend, from the early 60s on, for the small Quarry Leasees that are fit to sit inside the HSBC stable.

Review my homepage - quarry lease agreement

Anonymous said...

Registration forms are also available cosmetic surgery seo on Romney's YouTube page. This will ensure that your plan is inclined towards ensuring the right result is achieved. Moped and scooters have really come along in recent years. Cost Reduction or AvoidanceMost cosmetic surgery seoes know the importance of a web presence.

Feel free to surf to my site; cosmetic surgery web marketing

Post a Comment