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273. The Great ROE Debate in Real Estate Investing with Chris Lopez
Tax Smart Real Estate Investors Podcast
Exploring Return on Equity and Leverage in Real Estate Investing
The key to achieving a high return on equity in real estate investing is to have higher leverage, often resulting in less cash flow. Higher leverage allows for a higher return on equity, while paying off a property significantly reduces the return on equity due to lower leverage. To increase return on equity, especially in a market with increasing property values and interest rates, traditional strategies like cash-out refinancing or getting a HELOC become less effective. This is because high interest rates combined with low cap rates can lead to negative cash flow despite a high return on equity. In such scenarios, the investor must decide whether to retain the property or sell it to invest in a higher performing rental with a better cap rate.
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