Hopefully, as a real estate investor, you find yourself in the enviable position of needing to decide whether to cash out or reinvest the appreciated value of your existing properties. Many investors that made the leap at the bottom of the market (around 2012) are now in the desirable position of controlling property that has appreciated in value.
This means reviewing your portfolio to decide if holding is the right thing to do or if cashing it out is the best option. That brings up the subject of cashing out or reinvesting.
The place I highly suggest that you begin is by performing a thorough analysis of all investment properties that you currently own.
Cash Out or Reinvest Considerations
Deciding to cash out or reinvest in another property can be a tricky question to decide. If you have multiple investment holdings (some outside of real estate), you probably want to work with a finance specialist to review your entire portfolio. At the very least, you want to take a very close look at your real estate holdings to prioritize a list of them from best performing to the lease performing. This isn’t always about the property generating the most cash. If you’ve followed my on-going advice, you are controlling property with the least amount of your own money invested. Deciding to cash out or reinvest should involve looking at the Return on Investment being generated based on how much cash you put into the deal rather than just the amount of cash the property is throwing off each month.
Positive cash flow of $300 from an initial investment of $500 is much better than the same $500 positive cash flow from a $10,000 investment (reclaim your large investment). Carefully consider all of your options before deciding which properties to cash out or reinvest elsewhere.
Cash Out or Reinvest Options
When you decide to take the equity out of your investment(s), you have several options as your next step. Among the most common are:
- Bring in cash via an equity line of credit or equity loan. This typically brings in 70 to 75 percent of the appreciated value. And you still control the property.
- Take out 100 percent of the profit by selling. This brings in more cash but you lose control.
- Offer seller financing to maximize your profit.
- Use the cash to invest in another property or two or three. Think “controlling the property for the least amount invested”. Also, think about a 1031 Exchange for this.
- Use the cash to pay a balloon payment that is coming due on a high cash flow property.
- Use the cash to take your family on vacation. Taxes will be owed.
- You might be able to refinance at a lower interest rate to both keep control of the property and improve cash flow.
- Keep the cash in a reserve fund for emergencies or until a fantastic real estate investment opportunity presents itself.
- Move the cash to an alternative investment such as gold (stock market not advised). Many people have done this over the past few years as a hedge against hyperinflation. However, the hyperinflation hasn’t materialized as the economy stabilized. The value of gold has declined while real estate has been appreciating those same years, out-pacing inflation.
- Use the cash to buy other people’s owner financed notes paying 8 to 10 percent interest. This gets you out of the landlord business while still generating a healthy rate of return on your money.
Clearly, there are many considerations available when deciding to cash out or reinvest. If you’re faced with this decision, the good news is that you jumped into the market at the low point and rode it to a healthy profit. Good for you! Professional investors look for this exact opportunity. Now may well be the time for you to analyze whether you should cash out or reinvest for another profitable round of real estate investing.
By Wendy Patton
For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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