Whether mortgage refinancing is a good thing or bad thing, to borrow rich dad poor dad’s terminology depends on whether you know how to utilise debt. Debt when utilised properly with proper cash reserves built up to withstand months when you cannot find tenants for your property will enable you to own more property than you can do so on your own steam. Real estate magnates like Donald Trump used leverage and so should you.
This article assumes that you have paid up your first property that you are staying in and have paid up your second property partially and you are looking to refinance your real estate investment so as to take some cash out to purchase a third property and highlights three good reasons why you should do that.
Reason #1- Monthly Cash flow
I know of some people who are very contented with just one fully paid up property, but there is a problem, they are asset rich but cash poor. This means that they have no cash flow but they have lots of money locked up in their real estate holdings. By taking some money by refinancing your loan out of your second property, you can invest your money into 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 Interest Rate over the years to determine what way it is going and then aim to refinance in years where interest is lower. This would result in you having to spend less money all in all and save you a lot of money. Now with the lower interest rates, take the extra cash flow and save it and then as above, use it to invest into another real estate.
Reason #3- Combine properties
To bring your real estate investments into the next gear, then refinance both your properties and take the money and purchase a third property. Note that you should have a built in savings in your calculations as mentioned above to hedge against a market downturn in rentals or an inability to get tenants. After your properties increase many fold, you might want to follow the gurus advice and then start combining the total value of all your properties and then purchase a larger commercial building.
In conclusion, 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 out in paper your investment strategy and implement it and you will start seeing your real estate investment portfolio start increasing.
By Joel Teo 2006 All Rights Reserved