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273. The Great ROE Debate in Real Estate Investing with Chris Lopez

Tax Smart Real Estate Investors Podcast

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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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