Unlock the world of real estate investment, a realm brimming with rich opportunities for those adept at charting its frequently intricate course. Seasoned investors over time have introduced groundbreaking strategies that have reshaped portfolio management’s panorama. Among these strategies, a prime example we will be delving into is the ‘Refi ’til You Die’ strategy.
This concept proposes that consistent property refinancing can radically transform your investment game, particularly if market trends align with your projections. Intrigued about how it functions? Let’s dissect the idea with an illustrative example.
Imagine owning ten properties each valued at $100,000, spread across varied markets. If that seems far-fetched, consider five properties at $200,000, four at $250,000, three at $333,333, and so on. You catch the drift. Tailor it to your liking. In any scenario, your initial investment would sum up to the following:
Day 1: Loans amounting to $800,000 equivalent to 80% of your portfolio’s value, with equity at $200,000. (Note: Your $40K reserves are set aside and do not contribute to equity, and the $35K closing costs are acquisition fees and do not count towards your equity. Total Equity: $200K)
The key question is: how long until our investment doubles?
Applying the rule of 72 and the average home appreciation rate of 3.8%, we see:
72 / 3.8 = 19 Years (rounded up from 18.95)
It’s important to note that different markets appreciate at varying rates. We then explore how the average appreciation rate affects your investments and how long it takes for your investments to double based on that rate. Fast-forward 19 years with an assumed 3.8% appreciation rate, your $1 million portfolio has now burgeoned to $2 million.
Many might be tempted to cash in on this $1 million profit. However, our ‘Refi until You Die’ strategy gives you a tax-efficient exit route.
Through refinancing and liberating your equity, you secure $800,000 in cash which you can then reinvest, save, or spend tax-free due to borrowed money not being subjected to taxes. This cycle repeats every 19 years.
With the “Refi ’til ya die” strategy, no one pays taxes on the gains you’ve accumulated in your lifetime. Upon your death, a new tax basis is established. Your descendants won’t pay taxes on the wealth you’ve built but only on their respective gains unless they too engage in the ‘Refi ’til You Die’ strategy or shift into new properties through a 1031 exchange.
In essence, the ‘Refi until You Die’ strategy is a powerful, long-term game plan that could metamorphose your portfolio into a robust wealth generator, providing tax-free income for you and your successors. Remember, this is a hypothetical scenario, and consulting your tax advisor about potential tax implications and benefits is always advisable.
If this stratagem piques your interest or if you wish to explore other paths to amplify your real estate portfolio, feel free to connect. Let’s discover more about this exciting journey together!
