Fighting Inflation: Refi' 'Til You Die
Jason Hartman believes this is a risky option.
Inflation Destroys Debt
In the future, it may actually be better to have $1 million in debt than $1 million in equity. Why? Say inflation goes up 10% in future years. While the nominal value of debt might still be $1 million, the real value of the debt will actually be closer to $900,000. This is fantastic for debt, but bad for equity. This means you'll have either reduced your debt by $100,000, or lost $100,000 in equity.
Refi Til You Die
Say you have about $7 million earned from income property, and you reinvest the money at about 5%, there would be about $350,000 in taxable dollars. Next, extract the equity using maximum debt or leverage for a prudent investment property. There wouldn't be
any taxing on the borrowed money, and you would be able to put the money to work.
Lenders and Insurance
Owning a property i
n a state which is likely to experience a natural disaster, such as an earthquake, tornado, or flood for instance, you may not have purchased insurance for any specific natural disaster. It's often too expensive. In this scenario, if a natural disaster does hit the property, it's uninsured. However, if the property has a high loan balance, the lender will become your top advocate because they have to protect their collateral.
Say you do have insurance protecting against said natural disasters. Most insurance agencies have no problem collecting premiums, but they don't like to pay claims if the natural disaster actually does hit. For this reason, they often argue the legitimacy of the claim. They may say, in the event of a hurricane, the damage looks like it was caused by flooding when the property doesn't have flood insurance.
In this scenario, if the owner of the income property has a high loan balance, the lender will often go to bat for the owner. When this happens, there's no need to hire an attorney. The insurance company will have to go against the lender, who likely has dozens of attorney's. The insurance company will have no hope of winning, whereas, if they're just going up against you with a single attorney, they
don't have much to worry about and will avoid paying the claim. The lender can become your advocate, defender, and partner with leverage. They'll collect the money from the company. (Top Image: Flickr | Alan Cleaver)
The Young Wealth Team