Retire on cash flow or cash out refi every 5-7yrs
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Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votesI dislike both of those ideas.
A paid-off rent property is a bad idea for a number of reasons. First, it is a lawsuit target. Second, you aren't maximizing either your cashflow or your ROI. Assuming you are in one of the many markets in the country where you can buy cashflowing properties, do the math. If you are buying them right, you can always get higher cashflow from more leveraged assets than fewer paid-in-full assets. Finally, with a few paid-in-full properties, you won't have enough depreciation expense to offset your cashflow. You will pay tax on the cashflow and you wouldn't with leveraged assets.
Living off of cash-out refis is an absolutely terrible idea. Do you really want to be running out of cash and find, due to factors beyond your control, there is some sort of financial crisis and you can't get a loan? Your financial empire will come crashing to the ground.
I'd just keep building your portfolio, growing with reasonable leverage and cashflow until you reach the point where our cashflow exceeds your expenses. Its the safest and most sure way to financial freedom.
14 Replies
- Member since 2022 · 1k+ posts · 1k+ votes4y
Curious about this as well. In theory in should work, and you would not be paying taxes on the cash that you pull out. As long as the rents cover the expenses I don't see what's wrong with this strategy.
- 4yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
I dislike both of those ideas.
A paid-off rent property is a bad idea for a number of reasons. First, it is a lawsuit target. Second, you aren't maximizing either your cashflow or your ROI. Assuming you are in one of the many markets in the country where you can buy cashflowing properties, do the math. If you are buying them right, you can always get higher cashflow from more leveraged assets than fewer paid-in-full assets. Finally, with a few paid-in-full properties, you won't have enough depreciation expense to offset your cashflow. You will pay tax on the cashflow and you wouldn't with leveraged assets.
Living off of cash-out refis is an absolutely terrible idea. Do you really want to be running out of cash and find, due to factors beyond your control, there is some sort of financial crisis and you can't get a loan? Your financial empire will come crashing to the ground.
I'd just keep building your portfolio, growing with reasonable leverage and cashflow until you reach the point where our cashflow exceeds your expenses. Its the safest and most sure way to financial freedom.
- Real Estate Agent · Bellevue · Member since 2019 · 80 posts · 71 votes4y
Quote from @Justin S.:
I’ve talked to a few people with different takes one this question. If I’m looking to retire on my rental income, should I try to pay off properties ASAP and live off of cash flow or not worry about paying them off and just cash out refi every 5-7yrs and live off of that(assuming the rents can sustain the mortgage and expenses)
You might consider a third option of paying off some of your properties to make sure you have a good cushion. You can always access that equity through a HELOC to be able to take on additional cash-flowing properties to help you support your income and pay back the HELOC. That might be a cheaper option for you in the long run when compared to a refi every time.
The most important thing for me when looking toward retirement is comfortability and minimizing stress. If you have some rentals paid off I'd think you'll have enough flexibility to find the cashflow balance you're looking for.
TLDR: set up cheap debt to be comfortable/flexible/adaptable to the market conditions
Quote from @Greg Scott:
I dislike both of those ideas.
A paid-off rent property is a bad idea for a number of reasons. First, it is a lawsuit target. Second, you aren't maximizing either your cashflow or your ROI. Assuming you are in one of the many markets in the country where you can buy cashflowing properties, do the math. If you are buying them right, you can always get higher cashflow from more leveraged assets than fewer paid-in-full assets. Finally, with a few paid-in-full properties, you won't have enough depreciation expense to offset your cashflow. You will pay tax on the cashflow and you wouldn't with leveraged assets.
Living off of cash-out refis is an absolutely terrible idea. Do you really want to be running out of cash and find, due to factors beyond your control, there is some sort of financial crisis and you can't get a loan? Your financial empire will come crashing to the ground.
I'd just keep building your portfolio, growing with reasonable leverage and cashflow until you reach the point where our cashflow exceeds your expenses. Its the safest and most sure way to financial freedom.
In your opinion, would it make a difference if you were able to live on the cash out refi while maintaining about a 60% LTV? This gives some wiggle room for any catastrophes in the market.
Quote from @Liam Naughton:
Quote from @Justin S.:
I’ve talked to a few people with different takes one this question. If I’m looking to retire on my rental income, should I try to pay off properties ASAP and live off of cash flow or not worry about paying them off and just cash out refi every 5-7yrs and live off of that(assuming the rents can sustain the mortgage and expenses)
You might consider a third option of paying off some of your properties to make sure you have a good cushion. You can always access that equity through a HELOC to be able to take on additional cash-flowing properties to help you support your income and pay back the HELOC. That might be a cheaper option for you in the long run when compared to a refi every time.
The most important thing for me when looking toward retirement is comfortability and minimizing stress. If you have some rentals paid off I'd think you'll have enough flexibility to find the cashflow balance you're looking for.
TLDR: set up cheap debt to be comfortable/flexible/adaptable to the market conditions
I like that idea but all of my properties are commercial mortgages so I can't do a HELOC
- 4yBenjamin AakerPro MemberRental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votesIt depends on your situation. It'll take you a long time to get enough properties paid off so that each of them combined gives you enough money to retire. As you pay off each one, it doesn't do anything to decrease your mortgage payments right up until its completely paid off. It would be preferable to keep that money you would have been using to pay down debt and put it toward the next property. You'll reach whatever monthly income you want to retire on much faster by leveraging debt.
I view my properties as my retirement account, therefore I do not do cash out refis.
In 30 years when my retirement account is fully funded I'll cash it out and retire. In the meantime I have a line of credit secured against the portfolio which I use to obtain more properties, and then pay off the line with cashflow.
- I hear you on that. I’m at 45 units now and have leveraged or 1031 to buy all but about 10 of the units. If I refi every 5-7yrs, I can probably be done buying once I get to roughly 60 or so.
Quote from @Benjamin Aaker:
It depends on your situation. It'll take you a long time to get enough properties paid off so that each of them combined gives you enough money to retire. As you pay off each one, it doesn't do anything to decrease your mortgage payments right up until its completely paid off. It would be preferable to keep that money you would have been using to pay down debt and put it toward the next property. You'll reach whatever monthly income you want to retire on much faster by leveraging debt.
if I had to wait until I had enough cash flow, I’d probably have to be around 100-125. - Same here. It’s definitely my retirement. But if I can pull out 800k-1m every 5-7yrs tax free, that’s like making Roughly 200k+/yr.
Quote from @Austin F.:
I view my properties as my retirement account, therefore I do not do cash out refis.
In 30 years when my retirement account is fully funded I'll cash it out and retire. In the meantime I have a line of credit secured against the portfolio which I use to obtain more properties, and then pay off the line with cashflow.
Buffalo cost of living isn’t too high. I guess my thinking in this is that I can retire much sooner than waiting an extra 10-15yrs most likely.
this is all great feedback though. I love hearing the different thoughts. - Real Estate Agent · Bellevue · Member since 2019 · 80 posts · 71 votes4y
Quote from @Justin S.:
Quote from @Liam Naughton:
Quote from @Justin S.:
I’ve talked to a few people with different takes one this question. If I’m looking to retire on my rental income, should I try to pay off properties ASAP and live off of cash flow or not worry about paying them off and just cash out refi every 5-7yrs and live off of that(assuming the rents can sustain the mortgage and expenses)
You might consider a third option of paying off some of your properties to make sure you have a good cushion. You can always access that equity through a HELOC to be able to take on additional cash-flowing properties to help you support your income and pay back the HELOC. That might be a cheaper option for you in the long run when compared to a refi every time.
The most important thing for me when looking toward retirement is comfortability and minimizing stress. If you have some rentals paid off I'd think you'll have enough flexibility to find the cashflow balance you're looking for.
TLDR: set up cheap debt to be comfortable/flexible/adaptable to the market conditions
I like that idea but all of my properties are commercial mortgages so I can't do a HELOC
A problem I don't yet have hahaha best of luck!
- 4yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Quote from @Justin S.:
I’ve talked to a few people with different takes one this question. If I’m looking to retire on my rental income, should I try to pay off properties ASAP and live off of cash flow or not worry about paying them off and just cash out refi every 5-7yrs and live off of that(assuming the rents can sustain the mortgage and expenses)
From a financial viewpoint, the answer is that it depends on current interest rates and the property cap rate.
From a personal lifestyle viewpoint it’s a matter of comfort level with risk.I did pay off all mortgages and invest on a cash only basis when interest rates were higher and real estate prices much lower. Now I’m comfortable at a 50% debt level, and the higher return on invested capital it provides.
- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
Neither. Why would you want to pay off your properties ASAP. All you're doing is adding cost. That cash flow you think you're living off of is just the tenant paying you back for doing their job for them...and they would have done it for free. Living off refis is a good idea but not the way you're thinking
Quote from @Joe Villeneuve:
Neither. Why would you want to pay off your properties ASAP. All you're doing is adding cost. That cash flow you think you're living off of is just the tenant paying you back for doing their job for them...and they would have done it for free. Living off refis is a good idea but not the way you're thinking
Im definitely not going to pay them off asap
can you elaborate on why living on Refis is good but not how I’m thinking?- 4yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesPm me direct. My power is out and I'm trying to do this by cell phone
Quote from @Justin S.:
Quote from @Joe Villeneuve:
Neither. Why would you want to pay off your properties ASAP. All you're doing is adding cost. That cash flow you think you're living off of is just the tenant paying you back for doing their job for them...and they would have done it for free. Living off refis is a good idea but not the way you're thinking
Im definitely not going to pay them off asap
can you elaborate on why living on Refis is good but not how I’m thinking?
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