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  • PhudInvestor
    replied
    I am considering doing the same with one property. We have no loan and it cash flows well. I am considering taking a loan for about 60% of the present value. I would then invest the funds in syndicated properties where I would not have to do much active management. The advantages include higher leverage on my current property, more tax sheltered increase in value with the loan paydown, etc. I lose some cash flow, but hopefully get that back in the other investments the money is placed in. If it costs you 3.25% for the loan, but you can make 10% with the funds it makes sense. Inertia is always hard to overcome, and hindsight will be 20/20 when rates jump up again in the future.

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  • White.Beard.Doc
    replied
    Originally posted by Larry Ragman View Post

    Thanks, I appreciate the perspective. Yes, the cash flow us great, though right now I am paying tax at a high marginal rate even after deductions including depreciation. That situation improves after retirement. Meanwhile if we did cash out we would definitely reinvest. In what is the key question. This is a good thought exercise but another property is starting to make more sense.
    If your depreciation deductions have run out, in terms of no longer protecting your rental income from taxation, you need to make a decision. If the current rental income, after paying taxes, is plenty to comfortably support your lifestyle, then keep things simple, sit back, relax, and stick with what you have.

    If, on the other hand, you want to further increase your income and further reduce your taxes, you can cash out refi and purchase more depreciable property, or you can 1031 into more expensive properties with larger depreciation deductions available.

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  • Larry Ragman
    replied
    Originally posted by White.Beard.Doc View Post
    So yes, you do have access to low cost cash out mortgages on your paid off properties. The key question is what you might want to do with the proceeds of the cash out refi.

    If you put the money in a savings account, your new mortgage will cost you more than you will make. But that would provide liquidity. If you need the money to live on, then fine, as long as the rental income will cover the mortgage payments, it is sort of like a reverse mortgage but with someone else (rental income) to make monthly payments for you.

    If you have a great investment opportunity that you need the money from the mortgage to pursue, then great. Otherwise, perhaps just sit back and enjoy the rental income that is much greater when your mortgage has been paid off.
    Thanks, I appreciate the perspective. Yes, the cash flow us great, though right now I am paying tax at a high marginal rate even after deductions including depreciation. That situation improves after retirement. Meanwhile if we did cash out we would definitely reinvest. In what is the key question. This is a good thought exercise but another property is starting to make more sense.

    Leave a comment:


  • White.Beard.Doc
    replied
    So yes, you do have access to low cost cash out mortgages on your paid off properties. The key question is what you might want to do with the proceeds of the cash out refi.

    If you put the money in a savings account, your new mortgage will cost you more than you will make. But that would provide liquidity. If you need the money to live on, then fine, as long as the rental income will cover the mortgage payments, it is sort of like a reverse mortgage but with someone else (rental income) to make monthly payments for you.

    If you have a great investment opportunity that you need the money from the mortgage to pursue, then great. Otherwise, perhaps just sit back and enjoy the rental income that is much greater when your mortgage has been paid off.

    Leave a comment:


  • Larry Ragman
    replied
    Originally posted by dennis View Post
    To me it depends on what you plan to do with the tax free $ from the refi. You are correct the rentals are a hedge against inflation and I would not recommend you use the $ to buy a SPIA which by definition gets eaten up by inflation unless an inflation protection rider is bought. If you would buy more rentals with the $ you take on more debt but have more inflation protection and a wealth multiplier with more property to depreciate against the income and more tax free equity gain by the tenants paying off more debt. If you manage yourself you've taken on more work unless you off load the work onto a management company. Lots of decisions to make but I guess that's the benefit of having options that you've given yourself. Remember when you retire from your current job you then become a real estate professional with all of the tax advantages.
    Thanks Dennis. I take your point on the SPIA. Buying another property is viable. My wife has managed them to date and had been reluctant to take on another. But after retirement it would be easy enough for me to take it over. Alternatively we could buy a vacation/second home. Only issue there is that we have not decided where to live.

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  • Larry Ragman
    replied
    Originally posted by jfoxcpacfp View Post
    Bump - sorry you haven’t had any reaction to this. I just now noticed it.

    A SPIA can be ok, the only annuity I’d recommend, but only in specific circumstances. You don’t strike me as fitting into that box.

    I don’t really have an opinion on the cash-out refi, just don’t know enough about your overall plan and situation. Hopefully others will.
    Thanks for the bump and thoughts. Pretty clear I don’t need a SPIA anytime soon. I had it more in mind to simplify finances for my wife to prepare for some long term future if I am not around. But even so, we don’t need cash out refi of the rentals for that. If we want to go down this path it even can be after we sell.

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  • dennis
    replied
    To me it depends on what you plan to do with the tax free $ from the refi. You are correct the rentals are a hedge against inflation and I would not recommend you use the $ to buy a SPIA which by definition gets eaten up by inflation unless an inflation protection rider is bought. If you would buy more rentals with the $ you take on more debt but have more inflation protection and a wealth multiplier with more property to depreciate against the income and more tax free equity gain by the tenants paying off more debt. If you manage yourself you've taken on more work unless you off load the work onto a management company. Lots of decisions to make but I guess that's the benefit of having options that you've given yourself. Remember when you retire from your current job you then become a real estate professional with all of the tax advantages.

    Leave a comment:


  • jfoxcpacfp
    replied
    Bump - sorry you haven’t had any reaction to this. I just now noticed it.

    A SPIA can be ok, the only annuity I’d recommend, but only in specific circumstances. You don’t strike me as fitting into that box.

    I don’t really have an opinion on the cash-out refi, just don’t know enough about your overall plan and situation. Hopefully others will.

    Leave a comment:


  • Larry Ragman
    started a topic Cash out Refi

    Cash out Refi

    Tangler posted a recent poll and post about expectations for macro conditions. Next problem? - The White Coat Investor Forum - Investing & Personal Finance for Doctors Mostly I think we don't know, and it is best to stick with your plan. My one caveat is that I am considering cash out refi of my currently paid off rental properties. On the one hand, I hate to take on the debt and I have been planning the rental income as part of my retirement plan. But on the other the factors seem to support it. That is, holding the real estate is good if inflation goes up. Holding a low interest rate mortgage is good if interest rates go up. And the interest rates on the rental properties will be tax deductible even if I stop itemizing in retirement. If nothing else I could use the money to pay off my current mortgage. (I'm going to do this regardless once I retire.) But I might also consider a SPIA once I retire. My current window is 1.5-3.5 years. Any reactions or insights from the community?
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