Posted almost 5 years ago

Refi 'Til Ya Die!

Today’s topic was inspired by a recent comment from a reader (thanks, Shanequa!) regarding the wisdom (or lack thereof) inherent in our philosophy of never paying off a mortgage but rather refinancing it every 7 to 12 years. First of all, we’re not here to claim absolute superiority when it comes to real estate investing strategy. Different strokes for different folks and all that, but the idea of periodically refinancing your income property mortgages has worked out quite well for us for a couple of different reasons. Today we’ll address one of them.


Too many people underestimate the disastrous effect inflation has on assets in which the underlying value depends on a stable currency. Hate to be break the news to you, but our currency is about as stable as Charles Manson. This includes stocks, bonds, mutual funds, and any type of property you own that has an increasing amount of equity. A quick review: inflation is simply an economic term that refers to rising prices. The problem with rising prices is that they automatically reduce the purchasing power of any asset held in cash. 

A simple example would be to pull a single dollar from your pocket today and go down to the local grocery store to buy a one dollar candy bar. Take the same dollar to the same store one year later and, if annual inflation rises to meet the low standard of the government reported rate of 3 or 4 percent, the candy bar will likely cost $1.04 at least.

That’s the insidious aspect of inflation; it devalues your money, whether it be in the form of stocks, bonds, or equity-heavy rental properties. The flip side of this discussion is to realize that, while living in inflationary times (which we most certainly are), the best financial position to hold is a fixed-rate, long-term mortgage tied to a piece of income producing property. Pay down that debt too far and you lose your primary inflation-fighting tool. This becomes even more critical when you realize the government inflation numbers are vastly under-reported. Remember that they don’t even include energy and food prices!? We figure the actual number is at least 10 percent.

As the reader who questioned us initially (rightly) pointed out, you do incur fees every time you refinance, but that’s a small price to pay when compared to the portfolio-killing effect of year piled upon year of relentless inflation. And you can forget about the infrequent financial media nattering nabob who wrings his or her hands over the possibility of deflation. You have got to be kidding. That’s a red herring the size of Moby Dick. Our future is inflationary. Period.

Stay tuned next time when we discuss the second reason Jason strongly favors periodic refinancing. By the way, feel free to jump into the comments and fire away. We love a rollicking discussion. (Top image: Flickr | papertygre)

The Team

“The Complete Solution for Real Estate Investors” 

Comments (6)

  1. Tiny 1399656930 avatar jasonhartman1

    Hi Al, Sorry for the delayed response. Christmas happened, I think. For a more thorough answer to yours and the other questions that have been posed about the Refi 'Til Ya Die strategy, please visit my website at This is the transcript of a podcast I did on the subject and speaks well to the strategy. Thanks for your interest!

  2. Tiny 1399586579 avatar alewilliamson

    Jason Hartman I understand the inflation monster is lurking, but frequent cash-out refi increases your risk exposure geometrically. That is why so many investors allowed the banks to take back their properties. If you were proposing moderation on cash-outs, I would feel more comfortable accepting your guidance. But refi-till I die is excessive - don't ya think?

  3. Tiny 1399656930 avatar jasonhartman1

    All good points, but no one is talking about inflation. I'm afraid it's a more fearsome force than it gets credit for and will erode the equity in your properties AND future buying power more than refi charges. As you mention, Shanequa, I like to cash out a refi and buy more properties.

  4. Tiny 1399659196 avatar tradewindtiger

    I will have to third the motion. Use debt to get started, then hunker down and pay it off. No matter what happens with the powers that be and market manipulation, free and clear rules.

  5. Tiny 1399586579 avatar alewilliamson

    I agree with Ms. J on this. But another twist in fate - if the gvt slashes the mortgage interest deduction - that's is going to sour the sweetness on that phooey tax deduction (welfare for investors) that we all love (just like depreciation). Leaning toward refi less and reduce principle more.

  6. Tiny 1399546834 avatar bit1232

    I'm assuming you are writing about cash out refis. What happens when you refi a property and the new PITI causes you to break even or be in the red for that rental? This is the way I look at it: the candy bar (rental) is perceived as more valuable even if it's not and people have to pay more money (rent) to get that same product. So every few years, you should have a bigger profit due to increasing rent and a shrinking mortgage. The only reasons I would refi was to buy things that will make me money like houses or for emergencies. Besides emergencies, it only makes sense to refi if you can make more money.