Refinance Rental Property - Don't Sell It

You have a rental property for years, and never see the "big pay-off." Are it clip to cash in on your investment, now that you've paid down the mortgage, and values are up? Maybe not.

The Problem With Selling

Selling intends you'll have got to pay a large capital additions tax. This tin be avoided if you reinvest through a 1031 exchange, but then the point is that you desire your money, right? Also, a good rental gets more than income as rents travel up. Bash you desire to lose this inflation-indexed retirement plan? What's the alternative?

Refinancing Rental Property

Have you considered that if you refinance, you can get much of your addition out of the property, without paying a penny in taxes? Borrowing money is not a taxable event. You can take it and pass it however you want, and still maintain your rentals.

Let's expression at an example. Suppose you have got owned a small flat edifice for years. You bought it for $240,000, with a downpayment of $40,000, and mortgage payments of $1650 monthly on the balance. Now it is deserving $400,000, you only owe $120,000, and your cash flow is around $800/month. How make you get at that equity?

A bank will probably loan you 70% of the value, or $280,000. After paying off the first mortgage, you are left with $160,000. With todays lower interest rates, your payment on the new mortgage will be about the same. At most you might lose $50/month in cash flow.

An even better scenario: Use $40,000 for high-return upgrades to the property, such as as carports or wash rooms, and then raise the rents. You could have got got $120,000 left over to pass any manner you want, AND have higher cash flow. Bashes that sound better than merchandising your retirement plan? Don't sell. Refinance that rental property!