Cash Out Refinancing Investment Strategy

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Services for Real Estate Pros with Carlisle Mitchell - Insider Tips for Real Estate Investors

Carlisle Mitchell - Investment Strategy - Cash Out - Refinancing

One way to acquire a substantial amount of real estate is to periodically refinance properties already owned and then use the proceeds to purchase new properties. This procedure is known as cash out through refinancing.

Unlilte capital gains created through selling (where an investor purchases a property, improves it for resale at a higher price, and then purchases additional properties with gains from the sale), Cash Out Refinancing is based on keeping all properties acquired. By not selling, the investor is constantly increasing the refinancing base while voiding capital gains taxes.

Cash Out Refinancing begins with the purchase of one property. If more than
one property can be purchased to start the plan, then the refinancing base will be
enhanced at the outset. The type of property to be purchased should be improved income
property that has the ability to generate enough cash flow to cover all costs and mortgage payments.

It is in the best interests of the investor to purchase better properties in stable or growing
areas. Avoid older properties in declining neighborhoods where rents and values of such buildings are unstable and may decrease and thus ruin the refinancing cycle.

With the appropriate deductions and allowances, most, if not all, of the net income
earned during the years of ownership could be sheltered, while capital gain, taxes could be
avoided through the refinancing process. The estate could then be left for the investor's
heirs, at the stepped-up values determined at the date of death, without the investor ever
having to pay capital gains tax on any profits derived from ownership of the property.
Although Cash Out Refinancing to avoid capital gains taxes is a practical strategy, sometimes the sale
of a property is unavoidable. As indicated, any gains made in such a saln: are subject to
income tax.

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Comments (13)

Lanora Campbell
NMLS#232975 - Springfield, MO
Ozarks Home Loan Professional

Carlisle, with all the tightening of underwriting that may be a little harder to do today.  Great way to do it though.

Sep 29, 2009 03:20 AM
Carlisle Mitchell
Carlisle Mitchell - Insider Tips for Real Estate Investors - Houston Heights, TX

Lanora, definitely things have changed.. I believe for the better. With lending tightening as it has that means that experienced real estate professionals are needed to complete transactions which are now not so easy. Fortunately there are enough experienced professionals who can get things done for qualified clients.  I think one of the issues with the industry before is it was not tight enough.

Sep 29, 2009 10:54 AM
Lanora Campbell
NMLS#232975 - Springfield, MO
Ozarks Home Loan Professional

Carlisle,  I agree with you 100% the industry has needed this change for some years now.

Sep 30, 2009 02:18 AM
Carlisle Mitchell
Carlisle Mitchell - Insider Tips for Real Estate Investors - Houston Heights, TX

We could see it coming. So, what business are you interested in doing other than FHA?

Sep 30, 2009 02:32 PM
Lanora Campbell
NMLS#232975 - Springfield, MO
Ozarks Home Loan Professional

Carlisle,  right now here in Springfield it seems as though USDA loans are what we are doing the most of.  I would like to work more with Corporate Executives/Relocation but those usually work with their banks.  I'm really here to serve whomever I can.  I appreciate you asking.

Oct 01, 2009 02:05 AM
Carlisle Mitchell
Carlisle Mitchell - Insider Tips for Real Estate Investors - Houston Heights, TX

Are you referring to rural development loans? aka the last of the higher ltv mohicans? Isnt it amazing how easy it is to control development?

Oct 01, 2009 04:59 AM
Lanora Campbell
NMLS#232975 - Springfield, MO
Ozarks Home Loan Professional

Yes, it is rural development loans as you put it the last of the 100% mohicans.  Government program.

Oct 02, 2009 12:44 AM
Carlisle Mitchell
Carlisle Mitchell - Insider Tips for Real Estate Investors - Houston Heights, TX

What types of deals are you seeing with the rural development loans? Have you noticed any patterns or opportunities?

Oct 04, 2009 04:52 AM
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I would NEVER pull cash out of my home or business.  My goal is have them both paid for.  I certainly understand VA and USDA loans at 100% from time to time, but it's not what I would advise anyone to do unless it was their only choice.

Aug 16, 2014 04:48 AM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

I appreciate your information and agree this is a great way to go and grow ... I'm working with a few investors who have the same investment goals and it's fun to see their inventory grow.  Thanks for sharing.

Aug 16, 2014 05:13 AM
Carlisle Mitchell
Carlisle Mitchell - Insider Tips for Real Estate Investors - Houston Heights, TX

Your investment goals should always define your investment strategy. For some investors the goal is to increase their cash flow,expand their portfolio and let tenants and buyers pay for the asset.

Aug 16, 2014 05:33 AM
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Carlisle - Thank you for the very good information about cash out refinancing investment strategy.

Aug 16, 2014 10:42 AM
Captain Wayne - Rowlett Real Estate School
Rowlett Real Estate School - Panama City, FL
Rowlett Real Estate School / Owner and Instructor

Stopping by to welcome you to ActiveRain.  Keep up the good work

Aug 16, 2014 01:20 PM