Mortgaging Rentals for cash - Posted by John (KS)

Posted by Dave T on January 13, 1999 at 23:41:33:

About two years ago, I did a cash out refinance on one of my free and clear rentals at 75% LTV. I made sure that the property would cash flow with the new debt. I took the proceeds from the refi and bought four more rentals.

The cash flow from the free and clear is just a little less than the cash flow I have after buying the new properties. While my cash flow did not increase very much, my equity position improved dramatically. Reason being that I bought all four of my new properties at foreclosure sales, and at discounts from FMV.

Incidently, my free and clear is fully depreciated, and was producing a taxable income. Now with the new debt on this property, I have slightly better than a breakeven position with little to no income tax liability. I acquired four properties that all cash flow and provide a significant tax shelter for my rental income.

While I am not (and will not) advocate purchasing rental property solely for the tax advantages that accrue, this technique allowed me to keep my cash flow steady, and to acquire a depreciation deduction for all the rental income where there was none before.

The proceeds from the refinance of my free and clear property became the acquisition funds for the new purchases. Since all the money used is borrowed, this becomes a “No Money Down” situation.

Mortgaging Rentals for cash - Posted by John (KS)

Posted by John (KS) on January 13, 1999 at 14:31:53:

A friend of mine has about 10 rentals, 8 are paid off. He wants to continue investing in bigger and better things. I told him to look in to getting a 70%FMV loan on a few of his rentals to generate some cash for purchasing other properties. He didn’t see any advantages to that. There are tax and other advantages to doing that aren’t there?