Earning infinite returns on your investment is one of the most exciting accomplishments of a great real estate investment. It doesn’t happen on every deal, but when it does, it’s awesome. Infinite returns are achieved when you no longer have any of your money invested in a property, but you still own it and the property is still generating income. You can earn infinite returns in real estate through two strategies. One you’ve probably heard a lot about, the other isn’t quite as well known. But both a extremely effective when you use them at the right time on the right opportunity.
There are two ways to do so.
- Buy Undervalued Property
- Cash Out Refinance
In a cash-out refinance the investment strategy is buy a property, increase its value (usually by at least 20-25%), and then refinance the property at a high enough amount to get your original investment out. When you do a “cash-out refinance” you end up with your initial money you put down back in your pocket and you still own the property. If it’s a cash flow producing property, you still get all the benefits like cash flow and appreciation. However, now instead of calculating your return on investment by taking what you earn divided by what you have invested in the property, your returns are now infinite because you don’t have any money still invested in the property.
Things to consider before using a “cash-out refinance”:
- You are increasing the debt on the property so you need to make sure you don’t over-leverage the investment, and make sure you can still cover the debt payments after refinance.
- A cash-out refinance only works when you have a property where you can significantly increase the value.
- Financing can change all the time so what works today may not work in the future. Be sure to have multiple exit strategies.
- You still have to come up with the amount to put down when you initially buy the property.
A “cash-out refinance” does not work on every property and in every situation. However, it can be an amazing strategy to use and can produce infinite returns to the investor. Before using this strategy, you have to know that you can increase the value significantly or purchase below market value and that the property can support the extra debt once you do.
If you are looking for infinite returns, “cash-out refinance” and “no money down” investment strategies should be considered depending on the situation. When used properly, either one can provide infinite returns on your investment. “No money down” doesn’t require any cash up front, but is difficult to use in competitive situations or with highly desirable properties. On the other hand, cash-out refinances require money up front, but can work in competitive situations. One of my favorite aspects of cash-out refinances is that it allows you to get your original investment out, but doesn’t require you to sell the property to enjoy the extra value you’ve created.
Just remember, no investment strategy is right for every situation. Make sure your investment property is a good candidate. Remember, always support your investments with multiple exit strategies so that you’ll be fine no matter what the future holds.
Invest safe & well.