Real estate:

Are you benefiting from equity buildup?

What is equity?

Let’s discuss

Investors should periodically evaluate whether it is time to sell a property.

Why?

Equity.

Equity is the difference between the market value of the property and the amount you owe the lender (holder of your mortgage).

Even if your projections for the property are accurate, there are other influences that come into play when gauging your return

As the outstanding mortgage balance decreases each year and your equity position increases, you should evaluate whether this aligns with your targets

Equity buildup may appear desirable in the sense that you will get more cash from the property when it is sold, but it also means you have more funds tied up in the property.

Equity is illiquid.

Equity buildup represents funds that the investor could place in another investment if the property were sold.

This is the opportunity cost of not selling the property.

In relation to my strategy, I am holding properties for 7-10 years.

I will evaluate each property every year to make sure it aligns with my investment targets.

The key is to review performance and other opportunities available.

If you have built up significant equity, and you spot other risk-adjusted opportunities, you could:

1)Sell the property
2)Refinance cash out

Another downfall of equity buildup, while the total mortgage payment (debt service) remains the same, the interest portion of the payment decreases each year, resulting in lower tax deductions.

The question you have to ask yourself objectively:

“Does it make sense to keep my money tied up in the asset or can I find a higher ROI in another investment while still minimizing my risk?”

A question that often yields surprising results.

I hope this thread helps.

A short one for today but an important topic.

Each situation is different.

We are constantly adapting.

REM.