Posts Tagged ‘silent wealth builder’

Silent Wealth Generation with Rental Properties

Thursday, January 12th, 2012

When you own a rental property, two silent forces at work to increase your wealth:

1.) principal reduction, and

2.) increasing equity.

With each mortgage payment, you decrease the amount that you owe on a home loan as you reduce your principal. When your property is rented out, your tenant pays your loan for you. At the same time, equity goes up as property values appreciate over time.

Let’s assume that the original mortgage (loan) for a property is $150,000, which is also the original value of the house. As time goes by, the value of the house may increase to $300,000, due to appreciation. At the same time, the amount owed on the mortgage is reduced to $20,000, due to the mortgage being gradually paid down. At this point, the amount of equity (or value) that you have in the house would be $280,000.

If we don’t allow periodic dramatic rises and falls in home values to shake our confidence, we can count on steady, long-term, profits from our investment properties.

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Time to Seriously Consider Refinancing as Interest Rates Drop

Tuesday, March 25th, 2008

Now may be the time to refinance your house, take some equity out, and use it for a down payment on another investment property. Today, I applied for a refinance loan myself. I am getting my financial ducks lined up to purchase another fixer upper house this spring.

According to today’s Baltimore Sun article A Ray of Light for Housing, there is good news for buyers in that mortgage rates, appear to be falling. The average rate for a 30-year fixed loan has fallen under 6 percent, according to a Mortgage Bankers Association survey, and they expect it to show another drop tomorrow. The Federal Reserve’s new lending provisions for banks, announced a week ago, are already helping, they say.

With many foreclosed properties popping up on the MLS, and lots of short-sales available, the time may be ripe to buy. Prices are negotiable.

As investors, we know that refinancing at a lower rate gives a tremendous boost to our cash flow. Equity is the silent wealth builder, generated as tenants pay down our mortgage for us. We can judiciously tap into that equity by refinancing and investing it into new rental properties.

If you buy a fixer-upper and the numbers don’t work for you to rent it out, consider living in it for a few years until the market improves. Then you can sell it at a higher price when the market recovers, or rent the house out and buy another property to live in.

I’m not saying it’s time for you to buy, but as investors it may be time to start doing some warm up exercises and take a few practice swings on the sidelines.

For another perspective on the status of foreclosures see Foreclosures Produce Deals, but No Steals at

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