More income refinancing Out Equity and Mortgaging Properties?

5 Replies

I now own two homes that I paid for in cash. The first I bought for roughly 335k the second for 160k. Im 25 and I sold a company which I used to move about half the money I have into starting a real estate. I also own my primary home outright and I like not having debt. Im relatively risk averse, which is why I paid cash instead of mortgaging but I also wanted the ease of taking the income as my main income. Its not a huge income (around 8% cap) so im thinking about refinancing out the first house and using that money to mortgage more houses. In terms of living on the income my real estate generates (I have a job but not a very secure or reliable income job), would I be better off staying with the properties paid off or looking for similar good deals and mortgaging them ? Im assuming the homes I buy will have 8% ish cap rates. Thanks!

@Andrew Smith If you want to take the safer approach then pay off what you have and continue to grow slowly and grow a small portfolio. If you want to think big then you want to use leverage. That can be more risky but the rewards can be greater.

Originally posted by @Alex Deacon :

@Andrew Smith If you want to take the safer approach then pay off what you have and continue to grow slowly and grow a small portfolio. If you want to think big then you want to use leverage. That can be more risky but the rewards can be greater.

Is the income per month usually greater ?

Originally posted by @Andrew Smith:
Originally posted by @Alex Deacon:

@Andrew Smith If you want to take the safer approach then pay off what you have and continue to grow slowly and grow a small portfolio. If you want to think big then you want to use leverage. That can be more risky but the rewards can be greater.

Is the income per month usually greater ?

So this is where the math gets interesting.  Assuming you can qualify for 20% down financing, you can essentially buy 5 properties for the same amount you would have spent on 1.  (Of course assuming they're all the same price and add up to the purchase price of 1.)

This is extremely powerful because although your net income from each will be LOWER (due to paying a mortgage), you'll be more diversified. Your cash on cash return for each individually will be much higher since you've only laid out 20% vs 100%.

I could go into more detail, so let me know you have questions.

@Andrew Smith you would have to do the math as far as greater income but as far as a safe way to approach investing then leverage can be risky. Safe is to pay off and then buy another. Then pay that off and buy another. If you use leverage you can grow exponentially faster but when you do that so can the risk grow. I use leverage but I have 25 years experience. I hope this helps.

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