Investment Periods of Expansion and Contraction.
One of the things newer investors soon learn is that investing isn’t particularly linear, although it may seem that way at first. There are periods of expansion and contraction.
Most investors start with 1-4 properties, at which point they are out of “cash” on hand and ready to start the next phase. They now will be poised to build equity over time while collecting rents to pay the associated mortgages and bills. Then, usually within 5 years or so, the investor will begin to analyze his/her holdings.
Their next move is best to strategize with their team of experts: brokers, lenders, realtors, coaches, qualified intermediaries, attorneys & specialists…
Here are several possible investment scenarios, based on the time needs of the investor:
1. Refinance some or all mortgages to 15 year mortgages. Purpose: properties are paid off and almost pure cash flow after 15 years – ideal for parents with young children – One property per child = a great college fund.
2. Pay down 2nd mortgages and other debt. Purpose: poise debt to income ratio for more purchases and bump up credit ratings.
3. Refinance 1 or more properties to pull cash out and/or get better interest rates and/or avoid a property moving into more taxable standings. Purpose: for some investors approaching paying in taxes at tax time, insures that mortgage product has sufficient interest to keep income bracket low. This can also be accomplished in any given year by doing significant upgrades.
4. 1031 any properties the investor no longer wants to hold and/or maintain. Purpose: tax defer any gains on the property and reinvest in new (usually multiple) properties with the proceeds.
