Equity Refinancing
Aside from winning the lottery, the fastest way to grow your real estate portfolio is to access equity that has grown in your existing properties. The Equity in a property is simply the property’s current market value minutes the remaining mortgage balance.
EQUITY = Current Market Value - Remaining Mortgage Balance
Example: If the property is worth $800,000 and you owe $500,000 dollars on the mortgage, you'd have $300,000 in equity.
Many bank and financial institutions allow you to access up to 80% of this equity (called “Loan-To-Value” or LTV), by increasing the value of your mortgage through a refinance or by adding a Home Equity Line of Credit (HELOC). This cash can then be used to invest in other real estate purchases like pre-construction condos.
Why Would You Want To Do This?
Allows you to grow your portfolio much more quickly than saving a down-payment
Funds are tax-free because you haven’t sold an investment, you’ve only moved around debt
Can be structured so that extra interest costs are tax-deductible
This is the exact method that Alex and Kyle have used to exponentially grow their real estate portfolios and now own 20 properties collectively, having only started investing in real estate in 2012.
When investing in real estate, you want to target a “neutral”, or $0 monthly cash flow. If you have too much cash flow, it is just taxed away as regular income and if you have negative cash flow, then you will have to supplement it from your personal income every month.
Use the calculator below to determine the equity you can take out from your property while achieving a Neutral Cash Flow. The calculator will automatically factor in the 80% LTV limit and tell you exactly how much equity you can take out of your property to further grow your portfolio