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Investment Strategies - Tools to use to maximize Real Estate Investments



To truly create wealth and get the most out of your investment dollars you must invest for the long-term. A proven strategy for long-term real estate investing is the “Invest and Reinvest” strategy. This is a wealth creating concept for investor where the in initial investment is never liquidated. Instead it is transformed it into multiple properties without additional cash out of pocket. The equity in a property will allow the investor to acquire more properties in a tax deferred manner by utilizing a 1031 Exchange or by refinancing. Over time enough equity will accumulate in the property to sell and buy two properties.

For example, an investment home is purchased for $80,000 with 20% down, or $16,000. Total After 5 years the home is worth $120,000. The proceeds from the sale are $40,000, which could be reinvested evenly between two homes with $20,000 down on each. If the new homes cost $100,000 each there would be sufficient proceeds to put 20% down.  The investor now owns 2 homes, but the initial cash investment remains the same at $16,000.

Reinvest Example
Purchase Price
Cash Down
(10% + $2,000 Closing Costs)
Loan Amount
Value after 5 Years
Proceeds from Sale *

* This examples does not consider realtor commissions which might reduce proceeds from sale

If the investor chooses to sell the initial investment property, the gain on the sale is taxable if used for anything other than buying more investment property (see 1031 Exchange section. Alternatively, investors will refinance or take a second loan on a property to liquidate some of the equity. The cash is then used to invest in more property. Both techniques allows the investor to take funds in a deferred tax manner.

A 1031 exchange is used in circumstances when the investor prefers to sell the property, when there is an active selling market, or when the investor needs to liquidate the entire amount of equity in the property. Refinancing or acquiring a 2nd loan is used in circumstances when the owner prefers to hold the property or when the investor wants quick access to funds.

Refinance or 1031 Exchange?

1031 Exchange
One of the few tools available to defer or eliminate taxes from the sale of property
Deferring the tax makes more money available to invest in another property
You can acquire and dispose of properties to reallocate your investment portfolio without paying tax on any gain
Transaction subject-to strict rules & timelines
Must involve a 3rd party intermediary for approval and to facilitate the transaction
Requires investor to sell the property
It is a long process from selling to buying
Refinance or 2nd
Allows liquidation of equity for investing without having to pay taxes on the gain
Can be done quickly without having to wait for the sale and closing of the property
Allows the investor to hold onto the property
No complex rules or restrictions to follow
Using refinance money to acquire property creates 100% financed investments
Creates less cash flow because of greater leverage
Closing costs can make it expensive
Cannot access all equity as financing company requires some equity to remain in home



Past performance is no guarantee of future results. There can be no assurance that Real Property Investment Group, LLC, or the real estate market will continue to achieve investment results similar to those set forth in the examples above. It should not be assumed that investments made in the future will be profitable or will equal the performance of examples in this document. The strategies described in the document are solely the opinion of Real Property Investment Group, LLC and should not be considered investment advice.

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