Posted by Karl on September 22, 2004 at 18:13:33:
Great questions, I have wondered the same thing.
question about refinancing - Posted by Skip Tsukuba
Posted by Skip Tsukuba on September 21, 2004 at 22:40:26:
My friend buys new homes for FMV in a rapidly appreciating area. I buy for cashflow, so I buy below FMV in a lower-income neighborhood, and I don’t count on appreciation.
My friend claims that he makes his money through refinancing. I admit that I don’t understand refinancing, partly because it’s not part of my investment plan.
For example, if he pays $140k for a property (using a loan) then a few months later gets it appraised for $160k and gets a new loan for that amount, has he really made $20k? Doesn’t he now owe $160k on a property that may or may not be worth that amount?
He also takes out loans for 125% of the value of the property, and uses interest-only loans. Isn’t it good to try to get some equity in the property? I guess he can get equity if the property appreciates.
I know this isn’t the kind of investing I want to do, but could someone please explain how you can make money just by refinancing and what the dangers are?