Ontario Mortgage Information

Why should you consider refinancing real estate investments instead of selling them? Maybe you’ve owned a rental property for years, you’ve paid down the mortgage, the value is up, and you want to cash in on that equity. Refinancing would be a better option for you. Here are the reasons why.

Two problems are what you will encounter with selling. First, paying a large capital gains tax is what selling means. You can avoid this if you reinvest through a 1031 exchange, but then the point is that you want your money, right? You will also be giving up your inflation-indexed retirement plan. More income is generated by a good rental property as rents go up.

Refinancing Real Estate Investments Is Better

If you refinance, even without paying a penny in taxes, you can get much of your gain out of the property. In fact, it is not a taxable event to borrow money. You can still keep your rentals even if you take your loan proceeds and spend them any way you want. Don’t you think that sounds better than losing a big chunk of your equity to taxes?

Let’s try to look at an example. We’ll suppose you have owned a small apartment building for several years. Let’s say you bought it for $340,000, with a down payment of $80,000. During that time, interest rates were at 9.5% and this gives you a payment of $2,106 monthly on the balance of $260,00 (30 year amortization).

You now owe $220,000 and the property is worth $560,000. Your cash flow is around $2000/month. Question is, how do you get at some of that equity? If you sell, you will pay a bit part of the profit in taxes and you will also give up the income. What happens if you refinance?

If a 70% value is what the bank will loan you, then that would be $392,000. Pay off the first mortgage, and you are left with $172,000. There are no taxes due and you can spend it any way you want.

When interest rates are low, then it gets even better. If the new interest rate is 6.5%, your new payment will be $2295. In other words, you still have over $1,800 cash flow each month from an inflation-indexed retirement plan and you get $172,000 to spend any way you want.

Here is an even better scenario. For high-return upgrades to the property such as carports and a laundry room, spend $50,000 of the loan and raise the rents. You could have $122,000 left over to spend any way you want, AND have higher cash flow than before! Isn’t that sound better than selling your retirement plan? When you want that cash, consider refinancing real estate investments.

We focus on bringing to you the best selection of wedding rings with a vast array of settings, stones, size and prices. Get access to quality engagement rings with direct access to the selection, price and quality.