Buy Refi Die? Refi 'Til Ya Die! Etc...
Investor · Providence, RI · Member since 2016 · 142 posts · 40 votes
Buy Refi Die? Refi 'Til Ya Die! Etc...
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesNumbers determine if a particular strategy is workable or not. Obviously positive cash flow makes most strategies work well, while negative cash flow has the opposite effect.
I’ve never been a fan of any one particular strategy. The most profitable strategy is determined by the economic climate, the particular property characteristics, including location, type, rental income, value, cost, etc. and the owners/buyers/sellers personal financial situation.
The strategy you describe is often called “harvesting” your portfolio.
25 Replies
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Numbers determine if a particular strategy is workable or not. Obviously positive cash flow makes most strategies work well, while negative cash flow has the opposite effect.
I’ve never been a fan of any one particular strategy. The most profitable strategy is determined by the economic climate, the particular property characteristics, including location, type, rental income, value, cost, etc. and the owners/buyers/sellers personal financial situation.
The strategy you describe is often called “harvesting” your portfolio.
- Member since 2022 · 58 posts · 62 votes3y
That sounds horrible on the surface.
What is that $7,000 number based on i.e. Is that a monthly payment or annual? (Pretty high interest rate to make a 240k loan into $7,000 a month payment).
I can imagine Buy Refi Die works in a one or two cases:
1) You have 3 years to live.
2) You are reinvesting that $240K into transactions that will offset the $4,000 variance ($7,000-$3,000) (a 20%+ Cash on Cash transaction).
The more typical approach when you have a $300k property that is paid off is to 1031x it into a larger property, with the same or better net cash flow and a greater cost basis. Due to the higher cost basis yo will have higher depreciation to offset your taxable income.
- Investor · Providence, RI · Member since 2016 · 142 posts · 40 votes3y
@Don Konipol great thoughts and I agree, I like the term harvesting as well. The other question I would have about this, assume the numbers work on multiple properties and they say you're not paying taxes because it's a loan and not income, which, on the surface makes sense, but you're also paying taxes on the income from the properties that pays off the loan. I guess you can write off the interest expense so that's a little but still you'll have to show some kind of profit most likely. It seems like a very intense game, could be fun haha.
- Investor · Providence, RI · Member since 2016 · 142 posts · 40 votes3y
@Colin Kelly-Rand, monthly but it's rough numbers of trying to payback the loan in the 3 years it would take me to burn through it. It's not even close so I didn't bother breaking out interest and expenses.
- Member since 2022 · 58 posts · 62 votes3y
Ah! Interesting! Well back to my point #2, you have to get that additional $4k from somewhere (some very levered investment). I can imagine plowing that $240k into a rehab and getting the 20%+ cash on cash in a 3 yr period. Although I am a fan of the benefits of long term fixed debt - usually your borrowing at lower rates than you can earn on your money elsewhere. (And when you can't find a better rate than your borrowing, that's when you pay down debt...).
- Investor · Providence, RI · Member since 2016 · 142 posts · 40 votes3y
@Colin Kelly-Rand do any commercial loans ever fix their rates?
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
@Stephen Torti
“Refi til you die” has been my strategy. I’ve scaled up to 18 properties by doing this. I’ll do a cash out refi after equity has been built up and not doing anything for me. I’ll redeploy that equity into buying more properties. It’s all about the return on your equity. My first two rentals were paid off. I worked very hard to pay them off and saved up $ for many years to have them paid off. But I learned I could 10x my earnings if I used all that equity in them that was doing nothing for me. My cash flow went from $1200/month to 12k/month in 8 years by recycling or “harvesting” that equity. Some people don’t like any debt at all. I get that. I used to be a Dave Ramsey guy myself. But then I realized I could scale up fast and bring in way more cash flow if I leveraged a little. I’d rather have 18 properties that cash flow way more than just a few paid off properties cash flowing much less. And over the next 10-20 years, I bet appreciation will be much better with 18 properties vs just a few.
- Investor · Providence, RI · Member since 2016 · 142 posts · 40 votes3y
Ah, I knew someone would have done it! Ok, good tip on the return on equity being the main metric to track.
Ramsey is great for a lot of people, not trying to knock him but man, it's pathetically stupid to keep your rental portfolio only to what you can afford to pay if no one pays rent and to not use debt. It's a surefire way to take forever to get financially free. If you have 20 apartments and they all stop paying rent at the same time there are much bigger problems in the world than dollars.
- Member since 2022 · 58 posts · 62 votes3y
Commercial terms often include a fixed rate.
The most typical commercial fixed rate is for five years, and then an additional 5 years floating for a total term of 10 years. There typically is prepay of 54321 on the 1st 5 years and open for the floating rate period.
HOWEVER, there are 10 year options although typically you end up with a swap rate if you are doing 10 years (bank is just the middle man and someone else is the counter party - paying the floating rate for your fixed rate). We have two 10 yr swap rates. We are in the money (i.e. rates have risen and our counter party would likely like us to break the contract. ).
When you get to 5+ unit properties you can also do FNMA or FRE Mac Multifamily Loans that offer much longer fixed rate periods (up to 20 years). I used to underwrite these for Walker and Dunlop so very familiar with the program. Some really interesting options especially for top markets - such as 10 years interest only - which could be great if you are predicting a large amount of appreciation to make up for the lack of paying down principal.
Honestly, 10 years fixed is quite a bit of time to pay down mortgage - and after 7-10 years you will likely feel the itch to 1031x to harvest your equity and increase your cost basis (reduce taxable income).
- 3yLien VuongBusiness MemberReal Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
I do this Buy/Refi with almost every property I own - it allow me to scale and my peers have really hit it on its head. Its the return on equity metric that I care about. All of my $ out to scale and grow the portfolio. Inherently when you're doing that the debt increases so your cash flow decreases but you're adding more assets and taking all of your initial equity out to scale. Rinse and repeat.
The Elle Group5153 Reviews - Realtor · Providence, RI · Member since 2022 · 404 posts · 262 votes3y
@Stephen Torti - I've always thought this model was questionable at scale but can see it does work in theory assuming a positively cash flowing property; however I think the risk is a black swan event causing a dramatic drop in values. I think in this climate we should be conservatively leveraging our properties to the extent that we can.
- Investor · Member since 2022 · 36 posts · 17 votes3y
@John Morgan I'm reading this much later and really enjoyed what you shared. I keep rereading this sentence trying to understand, what do you mean when you say:
> "I’d rather have 18 properties that cash flow way more than just a few paid off properties cash flowing much less"
Assuming equal renovation investment - properties that are paid off should cash flow more than properties that haven't correct? (PITI at a high level) I can only see one scenario where every time you REFI'd you were able to obtain a lower interest rate.
And given high interest rates today, how would you adjust your strategy to be successful?
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesI was a Dave Ramsey guy and saved up for many years to pay cash for my first two rentals 8 years ago. If I kept saving and reinvesting my cash flow into more houses paid off, I’d probably have only 4 or 5 paid off rentals that cash flow around 5k/month. Not bad, but not great. Then I learned the power of leverage to scale up and let my tenants pay off my 25 and 30 year mortgages. I do have six on 15 year mortgages. I now have 18 rentals (only 1 paid off) that are leveraged with my cash flow around 13k/month. So for me, I’d rather have 13k/month cash from 18 rentals leveraged vs 4 or 5 rentals cash flowing me only 5k/month. I’m ok using other peoples money and letting my tenants pay off my rentals for me. And this legacy wealth handed down to my kids will be worth a whole lot more with 18 vs 5. But to each their own! Some people might tell me they’d rather cash flow 8k/month less to have just 5 paid off houses vs 18.
Quote from @Ian Halter:
@John Morgan I'm reading this much later and really enjoyed what you shared. I keep rereading this sentence trying to understand, what do you mean when you say:
> "I’d rather have 18 properties that cash flow way more than just a few paid off properties cash flowing much less"
Assuming equal renovation investment - properties that are paid off should cash flow more than properties that haven't correct? (PITI at a high level) I can only see one scenario where every time you REFI'd you were able to obtain a lower interest rate.
And given high interest rates today, how would you adjust your strategy to be successful?
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3y
@Stephen Torti. Refi till you die can make sense in a low rate environment.
Most of us did this in their growth phase. I wouldn't recommend it either with high interest rates or to fund my life. Eventually you want cash-flow to do this without the indigestion and $5kish cost each mortgage represents.
Nobody tends to talk about how much new mortgages cost. Like they're free or something. Whether most costs are wrapped into the loan or not doesn't mean they're free.
People don't talk much about the hassle either. Qualifying, the appraisal, sitting in the title office wondering why you're paying for the lender's protections like lender's insurance as you sign over your first born in a 16 page tiny word contract.
Mortgage derives from the French word muerte, which means until death. So I guess having mortgages until you die is how they're designed but not my hope or strategy.
- Investor · Providence, RI · Member since 2016 · 142 posts · 40 votes3y
Makes sense. thanks for the insight @Steve Vaughan
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @John Morgan:
@Stephen Torti
“Refi til you die” has been my strategy. I’ve scaled up to 18 properties by doing this. I’ll do a cash out refi after equity has been built up and not doing anything for me. I’ll redeploy that equity into buying more properties. It’s all about the return on your equity. My first two rentals were paid off. I worked very hard to pay them off and saved up $ for many years to have them paid off. But I learned I could 10x my earnings if I used all that equity in them that was doing nothing for me. My cash flow went from $1200/month to 12k/month in 8 years by recycling or “harvesting” that equity. Some people don’t like any debt at all. I get that. I used to be a Dave Ramsey guy myself. But then I realized I could scale up fast and bring in way more cash flow if I leveraged a little. I’d rather have 18 properties that cash flow way more than just a few paid off properties cash flowing much less. And over the next 10-20 years, I bet appreciation will be much better with 18 properties vs just a few.
Hi John, where is the location of the property and what year the acquisition starts ?
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Stephen Torti:
Makes sense. thanks for the insight @Steve Vaughan
What Steve said is basic investing principle.
In low interest rate environment: best way to collect cash-flow is thru over-leverage of equity investment
BUT
in high rate interest environment: best way to collect paychek is thru lending money to others (becoming a bank). - Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Carlos Ptriawan:
Quote from @Stephen Torti:
Makes sense. thanks for the insight @Steve Vaughan
What Steve said is basic investing principle.
In low interest rate environment: best way to collect cash-flow is thru over-leverage of equity investment
BUT
in high rate interest environment: best way to collect paychek is thru lending money to others (becoming a bank) --debt investment. - 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesDFW area in TX. I started in 2015 and bought 2 properties a year.
Quote from @Carlos Ptriawan:
Quote from @John Morgan:
@Stephen Torti
“Refi til you die” has been my strategy. I’ve scaled up to 18 properties by doing this. I’ll do a cash out refi after equity has been built up and not doing anything for me. I’ll redeploy that equity into buying more properties. It’s all about the return on your equity. My first two rentals were paid off. I worked very hard to pay them off and saved up $ for many years to have them paid off. But I learned I could 10x my earnings if I used all that equity in them that was doing nothing for me. My cash flow went from $1200/month to 12k/month in 8 years by recycling or “harvesting” that equity. Some people don’t like any debt at all. I get that. I used to be a Dave Ramsey guy myself. But then I realized I could scale up fast and bring in way more cash flow if I leveraged a little. I’d rather have 18 properties that cash flow way more than just a few paid off properties cash flowing much less. And over the next 10-20 years, I bet appreciation will be much better with 18 properties vs just a few.
Hi John, where is the location of the property and what year the acquisition starts ?
- Member since 2023 · 14 posts · 3 votes3y
Quote from @Steve Vaughan:
@Stephen Torti. Refi till you die can make sense in a low rate environment.
Most of us did this in their growth phase. I wouldn't recommend it either with high interest rates or to fund my life. Eventually you want cash-flow to do this without the indigestion and $5kish cost each mortgage represents.
Nobody tends to talk about how much new mortgages cost. Like they're free or something. Whether most costs are wrapped into the loan or not doesn't mean they're free.
People don't talk much about the hassle either. Qualifying, the appraisal, sitting in the title office wondering why you're paying for the lender's protections like lender's insurance as you sign over your first born in a 16 page tiny word contract.
Mortgage derives from the French word muerte, which means until death. So I guess having mortgages until you die is how they're designed but not my hope or strategy.
Aint this the truth. My closing costs were about 17k on a 255k property with 10% down. I got bamboozled with a special insurance assessment from the HOA that was required to be paid in full but even without that, they were 14k. Not cheap!
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @John Morgan:
DFW area in TX. I started in 2015 and bought 2 properties a year.Quote from @Carlos Ptriawan:
Quote from @John Morgan:
@Stephen Torti
“Refi til you die” has been my strategy. I’ve scaled up to 18 properties by doing this. I’ll do a cash out refi after equity has been built up and not doing anything for me. I’ll redeploy that equity into buying more properties. It’s all about the return on your equity. My first two rentals were paid off. I worked very hard to pay them off and saved up $ for many years to have them paid off. But I learned I could 10x my earnings if I used all that equity in them that was doing nothing for me. My cash flow went from $1200/month to 12k/month in 8 years by recycling or “harvesting” that equity. Some people don’t like any debt at all. I get that. I used to be a Dave Ramsey guy myself. But then I realized I could scale up fast and bring in way more cash flow if I leveraged a little. I’d rather have 18 properties that cash flow way more than just a few paid off properties cash flowing much less. And over the next 10-20 years, I bet appreciation will be much better with 18 properties vs just a few.
Hi John, where is the location of the property and what year the acquisition starts ?
yes, good strategy during low-rate era.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes3y
Quote from @Brett Ferrara:
Quote from @Steve Vaughan:
Nobody tends to talk about how much new mortgages cost. Like they're free or something. Whether most costs are wrapped into the loan or not doesn't mean they're free. People don't talk much about the hassle either.
Aint this the truth. My closing costs were about 17k on a 255k property with 10% down. I got bamboozled with a special insurance assessment from the HOA that was required to be paid in full but even without that, they were 14k. Not cheap!
Ouch. A few k were pre-paid taxes, insurance, interest, etc I'm sure, but that's a lot. A buy-down alone can be $10k easy.
I'm glad you chimed in. People with $100k are told they can buy 4 properties with 25% down. Nope. 3 properties with 25% down, then factor 25% in loan costs and pre-paids👍
- Member since 2023 · 14 posts · 3 votes3y
$5,634 for "Loan level adjustment." Ridiculous. 3 properties for 100k would be tight.
- 3yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votesI’m still doing cash outs with the current rates. Just did a cash out refi on one to buy 3 more houses putting 20% down on each. If the numbers work, I jump on it. This increases my cash flow an extra $2500/month after all my expenses. I’m not going to get rich off it, but it adds up over time when more and more are added. People always have an excuse why we shouldn’t buy. I look at it like dollar cost averaging. I’ll keep slowly buying each year. After a decade or two when I look back, I don’t think I’ll regret any of this.
Quote from @Carlos Ptriawan:
Quote from @John Morgan:
DFW area in TX. I started in 2015 and bought 2 properties a year.Quote from @Carlos Ptriawan:
Quote from @John Morgan:
@Stephen Torti
“Refi til you die” has been my strategy. I’ve scaled up to 18 properties by doing this. I’ll do a cash out refi after equity has been built up and not doing anything for me. I’ll redeploy that equity into buying more properties. It’s all about the return on your equity. My first two rentals were paid off. I worked very hard to pay them off and saved up $ for many years to have them paid off. But I learned I could 10x my earnings if I used all that equity in them that was doing nothing for me. My cash flow went from $1200/month to 12k/month in 8 years by recycling or “harvesting” that equity. Some people don’t like any debt at all. I get that. I used to be a Dave Ramsey guy myself. But then I realized I could scale up fast and bring in way more cash flow if I leveraged a little. I’d rather have 18 properties that cash flow way more than just a few paid off properties cash flowing much less. And over the next 10-20 years, I bet appreciation will be much better with 18 properties vs just a few.
Hi John, where is the location of the property and what year the acquisition starts ?
yes, good strategy during low-rate era.
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