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Maximizing Return on Equity: Getting the Best Bang for Your Buck

Maximizing Returns on Your Multifamily Properties in Texas

Are you currently making the most of your property investments in Texas? Most property owners aim to optimize their earnings from their holdings, but sometimes, the long-term hold strategy can tie up equity in a property, leading to missed opportunities for higher returns.

Here are a few options worth considering:

  1. Maintain the Status Quo and Pay Off the Loan: Continue with your current approach and eventually pay off the loan.

  2. Refinance for Flexibility: Consider refinancing to access tax-free proceeds, providing you with financial flexibility to reinvest or improve your property.

  3. Refinance and Acquire More Property: Refinancing can also be used to access tax-free proceeds, allowing you to purchase additional income-generating properties.

  4. Sell and Execute a 1031 Exchange: Explore the option of selling your property and using a 1031 exchange to transition into another investment property, deferring capital gains taxes.

Allow us to illustrate the potential of these options with a recent analysis. We worked with a long-term property owner whose property value had more than doubled since acquisition, and the property was entirely paid off. To accommodate the investor's conservative approach, we assessed scenarios involving a 50% loan-to-value ratio for refinancing. The property was also stabilized to qualify for long-term agency debt through Freddie Mac or Fannie Mae. We conducted a forward-looking 10-year analysis, and here are the findings:

In this case, by choosing the refinance and acquire more property option, the owner could increase their after-tax capital accumulation or net worth by nearly $5 million over the next 10 years, compared to maintaining the property as is. Every performance metric improved when capital was strategically leveraged, underscoring the importance of maximizing return on equity.

The great news is that having equity in a property offers a range of options for property owners. When you're ready to explore these options, please don't hesitate to reach out. We're here to assist you in making informed decisions and making the most of your multifamily property investments in Texas.


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