Isn’t pulling equity simply kicking the can down the road?

[Kei Nakahara]

How can you retire by building a large asset base and pulling equity? Isn’t it simply kicking the can down the road? How is that different from living off rental income?

[Levi T.]

@Kei Nakahara It’s about time. If your rental could net you $3,600 per year, or you could get 10 years ($36,000) of net income today, while still nettting a thousand or so per year after servicing the new loan, it’s a huge win. It let’s you rapidly expand your wealth in a shorter amount of time while still gaining some profits. 

You move that capital forward into a new investment that recoups the same, or better, amount of capital that you earned before the refi. Thus you gained $36,000 in refi cash, and $4,800 a year of income with two properties, vs just $3,600 a year with one and no refi cash. Do that 10 more times, and you have moved $360,000 in refi cash, and are now earning $13,600 per year, plus own 10 properties worth more than a million time paid off. 

You can become extremely rich very quickly if your good at it.