What about after the refi?

[Brayden Kelsch]

After purchasing the home and forcing appreciation, you hold the property for however many years and then eventually go to refinance to pull money out for your next deal. Let’s say everything went well, you leave with a healthy amount of capital for your next deal, and then what happens with the existing property that now has little equity? What does the liability look like after you’ve duplicated this process multiple times? Yes it’s nice to increase your portfolio and increase cash flow from having multiple properties, but all the properties you refinanced now have little equity? Doesn’t this just cause a chain reaction of increased liability from potentially never owning the properties outright? Or other problems with liquidating down the road to try and invest into larger real estate?

[Guifre Mora]

Originally posted by @Brayden Kelsch:

After purchasing the home and forcing appreciation, you hold the property for however many years and then eventually go to refinance to pull money out for your next deal. Let’s say everything went well, you leave with a healthy amount of capital for your next deal, and then what happens with the existing property that now has little equity? What does the liability look like after you’ve duplicated this process multiple times? Yes it’s nice to increase your portfolio and increase cash flow from having multiple properties, but all the properties you refinanced now have little equity? Doesn’t this just cause a chain reaction of increased liability from potentially never owning the properties outright? Or other problems with liquidating down the road to try and invest into larger real estate?

 Great question. You will be paying (or better said your tenant) the monthly mortgage and gaining the equity back. Cash flow in your pocket burns a hole and gains no returns. You either invest the cashflow on more properties or you pay back the mortgages earlier accelerating your equity, lowering the interest paid and repeat the process. For each property, you need a plan. Say you own 4 and pull out all the equity and purchase 4 more. Keep one cashflow for your Starbucks and use the remaining 7 to pay each other off. 

Acute investors know how to apply the debt snowball method as a way to own their real estate investments free and clear. The Plan basically works like this: Use all savings to apply towards one of the loans each month until one loan is paid early. Use all savings + new free & clear income to apply towards another loan until paid early.