Another advantage of real estate over other investments is the ability to withdraw cash from a property by refinancing. This, too, in most cases is a tax-free transaction. When you refinance a property, you are restructuring your existing mortgage debt - based on the added value your property will receive by adding amenities, improvements and/or services.
In almost every instance, it may be best to refinance a property, rather than to sell it. Let's discuss why.
Take for example a senior housing property, purchased for $9 million (with bank financing at $7.2 million). In reviewing the property prior to purchase, it was noted that by adding a few premium amenities to the first floor, this would create a higher occupancy level for the entire property. One such example of a premium amenity, was adding a 26-passenger shuttle bus, (for in house residents), to use coming and going to various popular destinations. In the first year alone, this improvement increased the value of the property by $910,000.00.
By adding a few of these premium base amenities, this in turn increased occupancy. When you increase occupancy, this increases cash flow. When you increase cash flow, you increase returns for investors. But where do you get the money to accomplish these improvements? From refinancing your investment and leveraging.
Within five years, this property almost doubled in value. The property is now more in a position to cover the higher mortgage payment, and best of all, the money from the refinancing is typically all tax-free.
So rather than perhaps selling your investment, refinancing and upgrading your property may be the wiser course to take. This provides you with a better competitive edge, and will ultimately result in a higher property value, increased occupancy levels, and cash flow.