Is there such a thing as good debt? Absolutely.
Using debt constructively, can have a very positive impact on your finances. Good debt is typically defined as debt used to finance something that will increase in value. Mortgage debt is one great example. Ask your parents. They took out a mortgage to buy the family home. Upon maturity, that home was worth many times what was paid for it.
Ditto for commercial real estate. On the presumption that you bought right, and you are using leverage appropriately, with prudent asset management chances are you’ll see both a return on Capital and a return of Capital.
Is Equity Take-Out the Right Move for You?
There are lenders who will provide you close to 100% financing, at a cost of course. However the likelihood is that you will be providing some amount of equity, to supplement the debt being raised to acquire the new asset. Is equity take-out the right move for you? Unless you have money stuffed under your mattress, I suspect it is. Consider looking to your existing assets or property portfolio, as an efficient way to provide you the financial resources you require.
The growth of equity from a combination of mortgage pay-down and value appreciation, is one of the fundamental benefits of real estate ownership. Why not make use of that equity to strategically address your real estate goals?
Examples may include funding a purchase, completing capital improvements, or simply investing in on-going maintenance items. One strategic option, often overlooked, is to release equity to pay-down or retire higher priced debt in your portfolio.
What are your Options?
The mechanics of releasing equity can vary. Increasing your existing mortgage is a logical choice, however the increasing popularity of real estate secured Lines of Credit offered by some institutional lenders seem tailor made for property owners considering an equity take-out. Some lenders even offer a Mortgage/LOC combination. This strikes me as ideal for making capital improvements, and repaying the debt from excess cash flow vs. amortizing those borrowed funds over the next 20 years.
Get your equity working for you.