Case Study #3 — John B.

Cash-out refinance of two currently owned small rental properties and reinvestment of proceeds into additional/larger property.

Starting Situation:

• 2 current properties (one duplex and one four-plex)
• Total combined value of $620,000 +/-
• Total combined current equity of $415,000 (hence, $205,000 in existing loans)
• Annual Return on current invested equity-capital of 415,000 was as follows:
  
  

  Pre-Tax Cash Flow	= $15,081 or 3.63%
  After Tax Cash Flow	= $12,024 or 2.89%
  Total Leveraged Return	= $33,781 or 8.12%
  Pre-Tax Cash Flow PLUS Income Tax Implications PLUS Yield from principal pay down on loans PLUS Projected appreciation @ 3.0% annually



• 5 year projected total Wealth Gain (Leveraged Return) of $179,346 or 43.22%

After refinance of existing duplex & four-plex plus the reinvestment of proceeds into an additional/new property:

• Acquired $1,345,000; 27 rental unit apartment property
• Used the $345,000 cash-out as the down payment and secured new loan of $1,000,000
• New loans on the existing duplex and four-plex had a combined amount of $550,000
• Annual Year-1 Combined Return from existing properties with new loans PLUS additional return from new 27 unit apartment acquisition was as follows:
  
  

  Pre-Tax Cash Flow	= $27,994 or 6.75%
  After Tax Cash Flow	= $23,545 or 5.67%
  Total Leveraged Return	= $106,037 or 25.55%
  Pre-Tax Cash Flow PLUS Income Tax Implications PLUS Yield from principal pay down on loans PLUS Projected appreciation @ 3.0% annually



• 5 year projected total Wealth Gain (Leveraged Return) of $562,963 or 135.65%