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The seventh profit centre is “Reinvestment.” The various profit centres all work together, so I’ve already alluded to this when discussing Profit Centre #2, mortgage write-down.
It works simply like this: As you increase the equity in one property through appreciation and mortgage write-down, that equity can be used to “leverage” (profit centre #5) funds from your mortgage holder. You simply increase the mortgage on your first property, or take out a line of credit against it, and take the difference in cash to invest as a down payment on a second property. Now you have two properties producing multiple profit centres.
Wait a few years, until the equity on the two has again grown, take out some equity on one or both of the properties, and invest it in a third. And so it goes.
Now, you may protest that, “hey, each time you increase the mortgage or line of credit, you add to your payments, eating up the benefit.” Well, that may be true, but not necessarily. Each time you increase that mortgage, you are essentially taking out a loan at the current mortgage rate. When rates are as low as they are now, it’s a cheap loan. If you make a return on all seven profit centres that, combined, is greater than the interest rate you’re paying on the increased mortgage amount, then you’re ahead of the game. If not, then you should shy away from the strategy. Or tweak it by making such adjustments as raising the rents you charge or remortgaging at better rates.
If you can do a little math, you can do it.
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