In this lecture‑style presentation, Jason Hartman walks through a long‑term real‑estate wealth‑extraction plan often called “refi‑to‑die.” He starts with a $1 million rental‑property portfolio, assumes a 6 % annual appreciation (using the Rule of 72) and demonstrates how, every 12 years, the owner can cash‑out 75‑80 % of the increased equity via a refinance while keeping 20 % equity in the property. The cash taken out is treated as borrowed money, which Hartman argues is tax‑free income that can be drawn down at roughly one‑twelfth per year. He repeats the cycle three times, showing how the portfolio could grow to $8 million and generate $250 k+ of tax‑free annual cash flow. Throughout, he notes that interest rates and rents tend to move together, that inflation and speculative appreciation are uncertain, and that the example omits many real‑world factors (vacancy, cash‑flow, tax benefits, debt‑destruction). The core claim is that rental property allows owners to extract wealth without selling the asset, making it a uniquely tax‑efficient wealth‑building vehicle.
Chapters
Just refresh your memory on this refi to die stuff, okay? Because this is the way to extract the wealth out of your property. Realizing the gain versus recognizing the gain and all that kind of stuff. Right. And for those of you who've been to creating wealth, you've certainly heard this I've talked about on the show. Here's our good old one million dollar portfolio. And by the rule of 72s, at 6% appreciation, it will double in 12 years that portfolio value. So 12 years, you're 40 years old now. Say you're now 52 years young, which is like the new 28 by the time that is. Right. Okay. I mean, this really does change the perspective on this stuff. Do you need $235,000 to acquire the portfolio? That's 200,000 down, about 3.5% closing costs. Okay. And so 20%, 23.5% and about 40,000 minimum left in the bank for reserves. That's 4% of the portfolio value. Minimum reserves. Right. 4% minimum for repairs, vacancies, things like that. So at the beginning of this plan, when you buy the properties, you have $800,000 in loans and you have 200,000 in equity. 12 years go by. Your portfolio is now worth $2 million. It doubled in value at only 6% per year. Rule of 72s. Now your gain is $1 million. You go to the bank and you say, refinance my portfolio for 8020 loan to value. I'll keep 20% equity in it, and I want 80% cash out. Could you do that today? No, I think you could only get a 75% cash out refund. Will the rates be higher in 12 years? Very likely, I don't know. But based on the concept of the three dimensions of real estate, if the rates are high, the whole market has to react. This doesn't happen in a vacuum. So if rates are very high, what will that mean to tenants in 2027? It'll mean that tenants are going to have a much higher cost of homeownership if they want to buy a house. So that's going to put upward pressure on rents. This is all relative, it all goes together. So, you know, you've raised your rents along the way. And the idea is rents will cover whatever your borrowing cost is at that time. Right. And that's how it's been historically. Okay. So now your loan value, your loan balances have doubled. You've got 1.6 million in loans, but your equity has also doubled. You've now got 400,000 in equity. And then you've got $800,000 in cash. Now, I want you to just take this $800,000 and stick it under your mattress and don't earn any return off of it, don't invest it, but you'll have $800,000 and you'll earn zero return on it. All you'll do is take that $800,000 and every year you'll take one twelfth of that money and live on it. So you will have tax free income because there's no tax on borrowed money of about $67,000 a year, tax free, which you know might be worth about 110,000 taxable. It's not bad. And that's assuming you earn no return on it. So for the next 12 years, you get cash out, refi. Okay? The bank gave it to you because your portfolio is now worth $2 million. It's worth double. So now you take and you live on your $110,000 equivalent taxable or 67,000 a year tax free income. And you go 12 more years. You're now 64 years young, which will be the new 40 by that time. And your portfolio has doubled again. It's now worth $4 million. And you know, the appreciation is speculative. I don't know if it'll happen. Nobody does, okay? But now Your gain is $3 million. You go to the bank and you say, I want 80% loan to value ratio, cash out, refi. So they'll say, okay, we can or can't do that. I'll give you $3.2 million in loans. Your equity has now doubled again. You've now got $800,000 in equity and you have $1.6 million. Cash out, stick it under your mattress, divide by 12, use 1/12 per year, and you've now got $133,000 a year, tax free, which is worth maybe, what? About 200,000 taxable to spend for the next 12 years now. Well, Jason, how do I know what rates will be in 12 years or 24 years? You don't. You just know that rates and rents are correlating indicators. So hopefully rents will cover any rate increases. Maybe rates will be low. Maybe we'll be living in the deflationary world. Maybe. Maybe it's really inflationary. And by that time, 133,000 is only worth 20,000 in real dollars. Right? If there's a lot of inflation. I don't know. Nobody does, okay? It's just a prediction. You know, we don't know. But this is the most tax efficient way to extract wealth from your portfolio. Okay. See the great thing about income property is you can get your cash out of the asset and still own the asset. Most things if you want to get your cash out, you have to sell the asset. But property is different in that way. It's just a beautiful asset class. So then you're living on your 133,000 tax free income for the next 12 years. And you go one more cycle. Now your portfolio is worth $8 million. You got a 7 million dollar gain. You can go get $6.4 million in loans potentially your equity is now doubled again to 1.6 million. So your equity position keeps increasing and you've got $3.2 million cash out, which is over $250,000 a year tax free free. We didn't include inflation induced debt destruction or the positive cash flow that hopefully you're getting over the years. We didn't include any tax benefits. This is a massively simplified example. Okay. But it gives you an idea of why income property is the most historically proven wealth creator in world history.
