Fix it up, re-finance it at 75% to 85% loan to value, and pull out the cash, which by the way is Tax Free cash, as you dont pay tax on borrowed money. Then you can rent the property out at a positive cash flow and have Tax Free cash in your pocket.
Now here is a game plan that I suggest that you would do with that money.
First of all, every time you buy a property, I want you to look at that property in the sense of what bill can I pay off with this property? If I have outstanding credit cards, a car payment, student loans, even a home mortgage; what bill can I pay off with this house?
You are looking at the house, running the numbers, hopefully buying it a 70% or less, fixing it up, re-financing the property and pulling out $5,000, $10,000, $15,000 tax free cash; then you are going to pay off a bill.
Let me just give you a quick example.
If you bought a property and after you purchase it, you were able to put $5,000 tax-free cash in your pocket and the property has a $200 a month cash flow. What if you take that cash and you pay off a credit card that also has a $200 payment? You have now just increased your cash flow from $200 a month to $400 a month and increased your assets by $5,000 by paying off that credit card. It is also probably going to raise your credit score, isnt it?
I would like to suggest that every time you buy property think about what bill you are going to pay off. After you pay off all of your consumer debt, your car payments, student loans and all that, then you start paying off your house. Once your personal residence is paid off, then you can go in and re-finance with a Home Equity Line of Credit at prime. You cannot get cheaper money than that. Then when you are making an offer to somebody and you ask them, What is the least amount you can take if I can write you a check by Friday, you can back it up because you can literally write a check on that Home Equity Line of Credit. That is a great feeling, having access to the cash, having the ability to write the check and knowing that you are debt free except for the properties that the tenants are paying for. Now thats a million dollar idea!
