7- Sell Blog

Don’t Sell, Refinance?

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The Best Selling Strategy May Be Not to Sell.

When looking to sell one of your rental properties you should look at the reasons for selling.

Sometimes, the best strategy is not to sell but to refinance instead.

Presumably you got into Real Estate Investing to make money and that you decided the way to go is to buy rental properties and to rent them out for a profit. Maybe you are now looking at other opportunities which requires you to invest some capital. This capital is tied up in your investment properties in the form of equity.

One of the things you can do is look at refinancing your property and pulling some cash out as part of the refinancing.

Most banks will let you do this up to a maximum loan value of the current appraised value. Yes, you will have to have an appraisal done but, depending on the bank, they will usually pay for it. Because this is a new mortgage with new terms, you will have to have a lawyer involved to make sure their is no other financing on the property and to register the new mortgage.

For example, assume you have a property worth $200K and you only owe $100K on it. That means you have $100K of dead equity in this property that is doing nothing. If you refinanced up to 80%, you would have a new mortgage of $160K. You would pay off the existing mortgage of $100K and you will be left with $60K of cash to use for your next investment.

When using this method, you will want to make sure that the additional cost of the new mortgage is covered by the rents in your rental property and that your rental property still has a positive cash flow. Realize of course that your profit is decreased due to the higher payments for the new mortgage.

Another alternative to refinancing is to take out a second mortgage.

In the above example you would take out a second mortgage for the $60K. The difference is that the second mortgage usually has higher rates. Some financial institutions have blanket equity programs that will allow you to get the second mortgage at the same rates. You can then use this money in your new investment and the second mortgage interest can be deducted against this new investment.

Of course, if you are sick of being a landlord, then by all means, sell. Or call me and I will take over your property and cover your costs and allow you to make a guaranteed return for an agreed to period of time.

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