Would you refinance ?

Question

So I have a home I bought for 80k cash.now it’s valued at 276k I did the rehabbed work since I lived in the home I been fixing it little by little. This year I bought a bigger home and rented the old one out and I’m getting 1900 back in cash flow and using that money to pay off my other home. So my question is I have all this equity what should I do refinance and buy other properties or just keep sitting on it since it’s paying my other home off ?

Joe Villeneuve · Answer

...and the impact just gets better from that point forward.  Run both scenarios out 10 years, and reinvest all cash flow back into the pot.  The $20k buyer (DP) buys another property every time they get $20k...remember to increase the CF with every new property.  The $100k buyer does the same every time they get @100k

Brad Bell · Answer

@Joe Villeneuve the later seems better because you would get your investment back in four years as oppose to ten with the former. 🤔Nice. 😀💰

Joe Villeneuve · Answer

If you're talking about a rental house, you were living for free before you started paying off the mortgage since your tenant was paying the bills (assuming you are positive cash flow).  Once you dipped into your own pocket to help them, that payoff money you're adding is now you making those payments.  Any money that comes out of your pocket is what you are paying for the property.  Any money that comes out of the rent, is the tenant paying the money.  Any and all money you pay adds to what your actual cost is for the property.  you start making a profit when you recover all the money you spend on a property, so the more money you spend, the more you have to recover, and the longer it takes, before you start making a profit.

Your cost doesn't include principle, interest, taxes, insur., etc...if the source of the funds comes from the tenant (rent).  Your cost is what comes out of your pocket ONLY...and should be restricted to the down payment.

Example:  Given:  REI has $100k in cash to use; $100k property; Cash flow before mortgage = $10,000/year; Cash Flow after mortgage = $5,000/yrChoices:     A) Pay $100k in cash and have no debt and thus $10k/yr in CF;     B) Pay $20k in cash (20%/DP) and w/mortgage pmt $5k/yr in CF

Which is a better choice for the best return on your $100k?

Luis Nino · Answer

@Joe Villeneuve well to me I just been living for free for 6 years now that’s what I see the value. But as I read more and get more into real estate I see that having more income streams seems to be what creates wealth.

Joe Villeneuve · Answer

What value to you think you are gaining by paying off your rental homes?