Refinancing equal spreading yourself thin?

[Thomas Breedlove]

So yesterday I was talking to another investor I'm trying to buy from and in our conversation I asked him if had every refinanced any of his properties to buy another and he told that he hadn't and that you never want to do that because at that point your spreading yourself thin. Any thoughts about this? I'm fairly new to this game with only three properties. Anything will help!

[Igor Messano]

I can see how some people can feel that way and it is not incorrect depending on what your goals are and how close you are to achieving them. For someone who wants to grow VERY organically and simply put their money in a property instead of some low yield bonds or savings account that might make sense. But having a lot of equity in your properties is the same as having your money sit in a low yield account but it is a much "safer" position than being over leveraged in all your properties.

When purchasing a property you look at your ROI and CoC returns to determine how well you are investing right? Well once you purchase that property what you spent on it is not as relevant anymore as you can't change it, thus a "sunk cost". So you start looking at ratios such Return on Equity (ROE) to see what kind of return you are getting on the money that is currently tied up in that property. If you have $100,000 tied in a free and clear property that rents for $800 per month, what is your annual return after vacancies and maintenance? Probably not great for someone looking to grow their portfolio. The question would be, can you get a better return if you refinance or sell the property and re-invest using more leverage? If the answer is yes and you are looking to grow quicker then that might be a better option, but not the option for everyone.

With more leverage comes more risk but potentially faster growth. If you are close to your goal or lets say retirement, a bunch of free and clear properties to support your lifestyle is a great option. Simply different strokes for different folks.