Opting for cash out refinancing is one method that I would recommend to someone that is serious about building out their real estate investment and property portfolio. You are able to take out a new mortgage with a principal that is larger than your current mortgage and utilize those funds to purchase new investment properties. Many a person has been able to do this, get a lower interest rate and have the added bonus of getting the cash they need for their investment venture.
The home or investment property equity that we have in our possession is really part of our portfolio. This is built by the payments that we make to our mortgage and through the appreciation of the value of our properties. This means that our equity is often trapped and unavailable to us unless we take home equity loans or refinance our mortgage. Cash out refinancing allows us to access this equity. We are able to use this cash from the equity that we get and reinvest it into our property portfolio.
Broken down simply in the form of an example, we can see how the equity is made available. Let us say that you own a property and that it is mortgaged to the sum of $200,000 and you have repaid a certain amount. Let us say that that amount is $100,000. Then, you have available to you a sum of $100,000 for equity and this is money that can be utilized for your additional investments.
You can take the option of cash out refinancing by getting a new mortgage for your home to the original value. This means, at closing, $100,000 is given to you for whatever purpose you have and you may have a lowered mortgage payment as well. There are many factors that will make this option a desirable one for you and you must evaluate the market circumstances as well as the personal situation that you are faced with and the purpose for which the money is intended.
Interest rates on mortgages fluctuate from time to time and it is important that this be considered as well as other factors. It can be simple for you to reach for the option of refinancing when interest rates are low but there is a factor of the expenses to consider before this is thought worthwhile and as such a balance is needed in this decision between where it is viable to refinance or not viable as the case may be.
It is up to you to do the necessary research and determine the feasibility of the option to your circumstances. The circumstances on the market will also influence the benefits or disadvantages of this type of refinancing and all this has to be considered in the decision making process. It is not necessarily an easy decision to decide to refinance your property so ensure that you are fully capable of meeting the payments required and that there is little chance that you will be unable to do so. Only opt for a refinancing plan that meets your budget.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.