Equity Harvesting - Good or Bad Idea

[Michael Temple]

In one podcast I listen to on investing they discuss the concept of "equity harvesting" on their properties. The idea is simple, as your tenants pay down the mortgage and the property (hopefully) increases in value that you refinance at low rates and pull that equity out before a market crash and then let the tenants build it back up for you again. They say you can put this equity into new investments.

In theory this sounds like a great idea. However I am also a person that has taken the principle of low to no debt lifestyle to heart. I like knowing that I have properties with lots of equity and easily manageable monthly payments on them, especially as I approach retirement. However, I also realize my return on equity numbers are falling dramatically and that I could potentially put some of this equity to better use.

I just wanted to hear what others think of this concept and if you have properties with equity are you pulling it out? What are you doing with it? How does this fit in with your future goals and feelings on debt?

[Evan Polaski]

@Michael Temple, I fall somewhere in the middle.  Your equity is idle cash when it is locked in a property, so from a dollars and cents standpoint, leverage your properties up and buy more.  As long as you are covering your costs, you are ahead.  Look for posts from Joe Villenueve and he will give you the break down of how you are very much behind by not putting that equity back to work and letting someone else create your equity and cash flow.

I am also a big proponent of being able to sleep at night.  If having $5mm of debt outstanding will keep you from living your life, or sleeping at night, than more debt is not the right answer.  

Lately, I have just not wanted to be a landlord.  So I have been selling my rentals and reinvesting in syndications.  In an apples to apples comparison, I am making more money, and do not have to think about what maintenance do I need to defer, reserve for, and generally deal with.