Does refinancing improve my chances of building equity?

Question

I own my condo, well not free and clear yet - i still have a mortgage - and i'm looking for ways to build cash reserves to start my real estate venture. I'm a super beginner in this process, but very motivated. unfortunately i dont have large accesses to hard cash. I was thinking about refinancing my current mortgage to help save on monthly payments and therefore provide a way to save up more cash quicker. i can pay my monthly mortgage and tuck the rest away for building cash reserves.

I just completed the Biggerpockets' Beginner's Guide to Real Estate Investing book and have learned a great deal. But i'm confused about the equity portion. I was told that refinancing will help build equity in your home. Can someone please explain how this is possible and if this is a good idea for someone like me to start doing? And will i have much greater success in applying for a home equity loan or HELOC if i refi my primary mortgage first? Again, Noob here with Noob questions so please have patience. I don't have much cash, so i'm thinking my home's equity may be an option to build cash reserves.

Aristotle Kumpis · Answer

Refinancing won't build equity, unless I'm missing something. When you do this, a lot of people take the costs involved and roll them into the property. So that will actually eat your equity. You'll hear companies saying that you can refinance with no costs. Well, they will roll the costs into your new loan and you will have less equity.

Remember, equity is your property value minus the debt or loan. If you already have equity, maybe you should look at doing a cash out refi. You can pull money out, tax free and use that to purchase another property. It real depends on your long term goals and the market you are in.