Over a long enough period, real estate tends to get more valuable. In as little as a decade, or even shorter, a piece of property may double or triple in value. In trying to profit from the higher value while still paying a mortgage, there are several methods to take advantage of the favorable conditions presented to you.
Let's say that you buy a property that costs an easy $100,000 with a mortgage you obtained. Over the next ten years, the housing market in your area becomes highly competitive as new people arrive and set up shop. Because of such events, the value of the property shoots straight up to $200,000- double the current value in which you invested in. You are now thinking of selling it for a quick lump sum- but is it the best idea?
In allowing the property to be sold, you are also allowing the government to take a cut of the profits from the sale. When you think about it, your profits will actually be fairly meager. When you consider that your value has doubled, yet your profits would be cut by a third or more, the prospect of selling it isn't too appealing anymore. However, there are still ways to make a vast profit from the upheaval in value.
If you would be so inclined, you could sit back and do nothing. You may raise the rent a little in order to stay competitive with rates around your area, but overall this process won't get you a substantial amount of money. Instead of selling or doing nothing, investors are looking into rental property refinancing, which can help extend a network of properties owned.
A rental property refinance will take a current rental property and borrow against it. Previously, you bought the property- and the value increased in double. This means you are eligible for another mortgage if you have shown a good track record in maintaining payments. This money can be used to buy more property in the area and to rent it out- so as to expand your empire and still keep your net worth building up.
There are instances where selling a property outright is a good solution. If you have dire need of the funds, don't be afraid to do so. But if you are trying to get your portfolio larger and more successful, the bet idea is to opt for the rental refinance option that lenders are offering now. Do realize, however, that this may increase risk of defaulting on a loan should something go wrong.
Closing Comments
There are plenty of lenders to choose from if you don't have one in mind already. If you've proven your worth to your current lender, you may wish to go back and ask about what they offer in terms of rental property refinancing.
