Are You Losing Money Just Because Your Rental Is Empty?
The big question for real estate investors: While you always hope to have your property filled with tenants…how can you make money on vacant rental properties?
You’ve worked hard to acquire rental real estate, expecting cash flow and appreciating assets. But what happens when your property sits vacant? Most landlords panic, watching mortgage payments, taxes, and repairs pile up—believing “no tenants” means “losing money.”
Here’s the reality: Savvy investors can make 100%, 200%, or even 300% returns—even during vacancies—by separating their equity and mastering a counterintuitive strategy professional bankers have known for decades. If you don’t understand how this little-known approach works, you risk lost returns, poor liquidity, and long-term financial headaches.
Let’s pull back the curtain and show you how to transform every rental—full or vacant—into a potential profit powerhouse.
Introduction how to still make money on your rental real estate your rental properties even when they are vacant i still make uh 100 200 300% rates of return on my rental properties even if they’re vacant and if you don’t understand this you’re going to get into trouble sooner or later on your rental properties get ready and I’ll explain why so I’m Doug Andrew i’ve been a financial strategist a retirement planning specialist now for more than five decades helping thousands of Americans optimize their assets minimize taxes and empower their authentic wealth i have many multi-millionaire even billionaire clients who own a ton of real estate rental properties residential real estate uh strip malls commercial buildings apartment complexes the savvy Mortgage-to-the-Hilt Philosophy ones do what I do they keep those properties mortgaged to the hilt and all of their money separated from the properties okay uh savvy landlords understand this and they usually refinance their properties like I do every three four five six years uh to keep it mortgaged to the hill and their equity separated you can’t believe how many people that own rental properties they take all the positive cash flow and uh they apply it against the mortgage uh to pay it down down down thinking that’s saving them money they don’t understand how money works so uh let’s start um right from the the basics why do most people enjoy uh buying uh real estate nonowner occupied you’re not occupying it uh why do they do that and then rent it out well because there’s Real-Estate Tax Deductions 101 three big deductions you get out of that and those usually uh give you some tax breaks what are those three big deductions okay uh well you get to write off money you spend on maintenance and repairs okay you get to uh depreciate the property but that means uh you’re depreciating the property down over several years and then if you ever sell it uh now you have a huge amount of capital gain uh that you’re going to have to pay capital gain tax on unless you do 1031 exchanges which is not really saving tax it’s just postponing and deferring uh and then maybe you’re hoping to give it to your heirs who will get a step up in basis if you’ve listened to a lot of the tax revenueers recently uh they want to double the capital gain tax rates and they want to do away with a step up in basis they even want to tax you on unrealized capital gains thank goodness uh we’ve put off that uh we’ve dodged that bullet for maybe four more years as of the recording of this video okay uh but those are usually some of the tax benefits you get in the short run when you uh buy uh rental properties now uh if you have positive cash flow what does Cash-Flow Trap of Paying Down Principal that mean that means uh hopefully you’re renting the property and the rental income is greater than those expenses or at least the mortgage okay and so a lot of people think well if I have positive cash flow I can live off of that oh but but but man I’m going to send all this extra positive cash flow and pay down the mortgage and then they are killing their partner Uncle Sam and giving up liquidity people say “What?” So let me give you some examples here because I have other videos that talk about about 14 reasons why I keep my real estate equity separated but one of them is uh because I keep making money even if my rentals are vacant okay so let’s talk Three Marvels: Compound, Tax-Free, Leverage about this uh you have to understand how money works what arbitrage is uh there’s three marbles of wealth accumulation the first is uh compound interest the second is tax-free accumulation the third is safe positive leverage which is the ability to own and control assets with very little or none of your money tied up at risk in that asset okay and so uh you want to earn a rate of return greater than the cost of the funds that’s what banks credit unions uh their greatest asset is their liabilities banks and credit unions insurance companies would wither up and die if they stopped paying interest okay their greatest asset is their liabilities and so folks um for the last 40 years uh every million dollars that I uh borrow or mortgage on my real estate uh I might borrow at an average of 6% now I’ve borrowed as low as three and three/4ers i’ve borrowed as high as 21% but interest rates are relative i was earning uh way higher than that uh on my investments but this has been the average is about 6% so let’s use that if I borrow a million dollars on a rental property at 6% interest uh that’s 60,000 of interest i don’t view that as a foe 100 % Arbitrage Example ($1 M Loan) that’s my friend because I’m my own banker i get to write off that $60,000 on my uh LLC or corporate return or whatever uh and in a 33% tax bracket I get to save 33% of that in actual tax this is real money it It’s not you know paper money so I get $20,000 back in actual money and so the net cost of a 6% taxdeductible in uh mortgage in a 33% bracket is four do you understand that if you don’t understand that oh bless your heart uh so it’s costing me uh 4% or 40,000 that’s not a cost that’s an investment uh I will gladly pay an employee 40,000 if that employee makes me more than that that million that I don’t pay down is sitting over in my IL laser fund which is liquid safe earning average rates of return more than 9% i’ll just use eight okay 8% that’s 80 grand taxree taxree compound interest simple interest tax deductible let me just ask you this how much more is eight than four don’t say four it’s 100% more would you hire an employee for 40 grand that made you an extra 80 grand would you buy a widget machine for 40 grand that made you an 80 grand that’s called a 100% return on equipment cost or employment cost what does this mean if this were a rental home and I had been sending extra principal payments against the mortgage and I have no liquidity uh and now it’s vacant I’m sweating bullets how am I going to make my mortgage payment but if I have the million still sitting over here I didn’t lose a dime i can go in here and I could access half of the interest that I’m earning that year half of the 80,000 and meet my mortgage payment okay i could access three4s of it 6% and then get 20,000 back later but I have the money i am earning money even if it’s vacant Covering Payments During Vacancies see the savvy landlords uh that are my clients they they say “Doug it’s amazing how many how many real estate investor don’t understand this.” And so they keep their properties mortgaged to the hill uh my own uh landlord a friend uh he he mortgages all of his commercial real estate to the hill he did it prior to CO 19 when he ended up with 60% vacancies no problem because he had enough interest he was earning to cover all of the mortgage payments he was making money like crazy even with vacant office buildings other landlords throughout the country uh they had 40 50 60% vacancies because of CO 19 and uh because you know people were working from home and uh then in the interim uh interest rates climbed up and now they’re forced to refinance those commercial properties and the mortgage payments are twice as much and they’re still vacant and so they’re getting foreclosed on and every dime they sent an extra principal payments against those mortgages they’re going to lose in one fell swoop when they get foreclosed on is this making any sense to you okay uh so uh I I keep making money on my rental properties even when they’re vacant and it’s not just 100% let me Liquidity vs. Equity Risk show you why now what you need to understand is money trapped in real estate uh does not pass the key elements of a prudent investment see it’s not liquid you can’t access it when you need it when you need it the worst it’s the hardest to get who’s going to loan you money on a commercial building that is uh vacant or only 40% occupied and when the value of the building therefore has gone down in value who’s going to loan you money on that i I I’ve learned that lesson is when you need the money the worst is the hardest to get number two safety of principle if I have my money separated and they uh real estate goes down I don’t lose i’m in control because I didn’t lose if you leave it in the property I guarantee you will lose until it comes back to that value again which may take years what about rate of return you’re earning a 0% rate of return i don’t care if it it’s got tenants in there the real estate uh you you it grows as as a function of appreciation and the and the debt reducing and if you have positive cash flow but see the equity in it is not giving you a rate of return do you understand that and so I keep the equity separated to earn a rate of return even if it’s vacant so folks uh sometimes people quit there’s three kind there’s two kinds of people in the world is what they say uh those who pay interest and those who earn interest and I go oh bless your heart that’s such a cute little cliche that’s not the truth though there’s actually three kinds of people in the world stvers who pay interest arrivers who who who uh who earn interest but the mega wealthy thrivers that I’m talking about learn when it’s wise to pay interest to earn more interest banks and credit unions borrow OPM other people’s money and pay you 3% because they’re benevolent institutions they just put your money in a vault no they turn around and loan it back again at six seven or 8% they have overhead sometimes they only make one or two percentage points and they make billions because of that arbitrage leverage leverage though without liquidity is stupidity that’s why I’ve never paid a down payment for any piece of property I’ve ever acquired i’ve satisfied them but not with my money i keep I I mortgage my real estate 80% loan to value on a first mortgage the last 20% with second and third mortgages 100% uh loan to value because of my credit i keep it all out of there and liquid if you even tie up 20% in a down payment that’s illquid if you take $500,000 and you pay cash for one rental you have no liquidity if you take $500,000 in leverage and put a $100,000 20% down on five $500,000 properties you have no liquidity you’re leveraged if I buy five then I mortgage all five for 500,000 and I keep my 500,000 cash separated does that make sense now let me show you how this really works i have 300 % ROI Case Study & IUL many clients they have non-owner occupied rental income properties and uh every million dollars they borrow on these properties at four and a half percent interest because they have such good credit they get good rates 4.5% taxdeductible interest they write off 45,000 on every one of these rental homes uh in a 33% bracket they’re saving 15,000 in tax so the net cost is only 30,000 and on their IL laser funds where they keep the million instead of trapped in the property they’re earning nine or higher tax-free by the way this keeps compounding so it’s all it’s even more than than this uh starting the second third and fourth year just looking at the first year how much more is nine than three 300% would you fire an employee would you hurry and get rid of an employee that’s making you three times more now now that’s a that’s a 200% profit but it’s a 300% rate of return on employment cost if you don’t understand this then uh good luck when you have vacancies in your properties and you lack liquidity good luck when that property gets destroyed with a hurricane or a tornado or a fire and uh you lack options and uh the um the uh property insurance says “Oh well to rebuild this is going to cost 5 million and you’re only insured for 3 million so good luck.” See I don’t worry about any of that because if if if they say “Well it was worth 5 million you’re only insured for three million.” I say “Okay you can have it.” That’s the deal but I didn’t lose my money because of my my 5 million wasn’t in there in the first place is this starting to make sense hopefully Next Steps if if it doesn’t or at least you’re going “Wow I’ve never thought of it this way.” I would implore you to study my book The Laser Fund now uh this has been flying off of our warehouse shelves um it retails anywhere from 20 bucks up to 60 bucks on Amazon and if you buy it on Amazon I thank you okay but I’ll gift you a copy for free you simply go to laserfund.com or click on the link below you contribute a nominal amount towards the shipping and handling i’ll cover the rest of that cost and I’ll pay for the book i will fire out a hard copy to you via priority mail and then while you’re in there claiming your free copy of this 300page book which by the way is two books this site is 200 pages with all the charts and graphs and explanations if you’re a leftbrain learner if you’re a rightbrain learner you flip it over to this book uh this uh is about 100 pages 12 chapters with 62 actual stories uh but uh you uh can receive the hard copy but if you like to listen and learn or watch and learn there’s those formats available for your investment when you claim your free copy uh but you can even register to attend one of our free educational webinars that we teach every week no charge you can even schedule an appointment to talk to an IL asset optimization specialist who will show you how these strategies may apply in your particular set of circumstances no cost no obligation and when you learn about this IL laser fund you’re going to be blown away because when you have the money every million dollars I have in a laser fund if I want to access money out of it I do the same thing it’s called laser banking i could withdraw a million but it’s no longer there earning interest i borrow at 5% but I don’t have to pay 50 grand is deducted from what I earn that year many times I keep earning 10 15 25% or higher if I earn 10% I I’m earning a 100,000 on this million and they’re charging me 5% to borrow from the insurance company using that as collateral i make 100% rates of return on my money in my IL laser fund while I’m using my money for whatever I want to use it for if I just blew you away good you need to claim a copy of my book and get in control of your brighter future
The Problem: What’s at Stake With Your Rental Property Strategy?
The Costly Trap of Tying Up Equity in Your Rentals
Most property owners pay down their mortgages as quickly as possible, aiming for “debt-free” real estate. They plow extra cash flow into reducing principal, convinced that this strategy saves money and lowers risk.
But here’s the trap:
Low liquidity. When vacancies hit or emergencies strike, funds are locked inside the property and are harder to access (you often have to qualify for a loan using the equity as collateral or sell the property).
Lost opportunity cost. While your equity sits idle, it produces little to no return.
Tax inefficiency. Because you only deduct the mortgage interest you actually pay, reducing your principal can mean reduced tax deductions.
Increased vulnerability during downturns. If the property value drops or tenants leave, your money is tied up in the property, without easy access to capital to weather the storm.
A 2023 Marcus & Millichap report showed commercial landlords with 40% vacancies experienced significant financial distress, especially those who focused on quickly paying down debt rather than maintaining liquidity.
If economic shifts, severe vacancies, or disasters hit, being “house rich but cash poor” can quickly turn investment dreams into financial nightmares.
The Solution: How the Savvy Make Money During Vacancy
Unlocking Arbitrage With Separated Equity
Here’s the little-known approach: Savvy investors keep their properties “mortgaged to the hilt” and store their equity in safe, liquid vehicles outside the property in a properly structured, maximum-funded Indexed Universal Life (IUL) policy, or what I call an IUL Fund.
Why does this work?
Liquidity: With an IUL, funds are always accessible via policy loans, making it easy to cover mortgage payments during vacancies or to seize new opportunities.
Arbitrage: With an IUL Alternate Loan, it’s possible to benefit from arbitrage—for example, borrowing at 4% to 6% and earning as much as 8% to 9%.
Tax Efficiency: Because you’re not paying down your mortgage, the mortgage interest deductible remains higher, which can lower your effective borrowing cost.
Asset Protection: Keeping cash out of properties can protect equity from lawsuits and market downturns.
Let’s look at an example: Let’s say you borrow $1,000,000 at 6% interest ($60,000/year), but after tax deductions (assuming a 33% bracket), your actual cost is $40,000. With an IUL Alternate Loan, that $1 million is still in your policy acting as collateral for the loan. Let’s say it’s earning an average of 8% ($80,000/year), tax-free. Doing the math on the net return, your policy earns $80,000 earned, while your cost of the loan (with the tax deductions) is $40,000, so you’re earning a $40,000 profit, even if your property sits empty. That’s a 100% return on cost—regardless of vacancy. This is how you can make money on vacant rental properties!
Comparative Insight: Why Most Landlords Get It Wrong
Paying Off Mortgages Early = Missed Profits and Risk
The Common Way
Most people get anxious about minimizing debt, so they send extra payments to the mortgage company to pay down principal as soon as possible. But then what if the rental is vacant, or they’re scrambling for cash? They often get to choose between selling assets or taking unfavorable loans. They’re also paying down their tax-deductible interest, which means they’re left with more taxable income.
The Savvy Way (Separating Equity)
On the other hand, those in the know want to maintain leverage. They refinance every few years to keep mortgages high but manageable. That equity is essentially safe in vehicles like an IUL, often growing faster than interest costs. And even in market down years, their IUL doesn’t lose any principal due to market volatility, with a 0% guaranteed floor. They can enjoy liquidity and flexibly cover shortfalls—even during economic downturns or property vacancies.
Lost Opportunity: During COVID-19, some commercial property owners with high vacancies and low liquidity faced foreclosure, losing every dollar sent into extra mortgage principal. Meanwhile, those with separated equity sailed through, simply redirecting earnings from their liquid accounts to cover payments until tenants returned.
Real-World Example: Thriving in a Down Market
In 2020, a commercial landlord in Dallas faced a sudden shift: 60% of his offices were vacant due to remote work. While many peers panicked, he was calm—he’d kept every building at 80% loan-to-value, parking the difference in a high-performing Index Universal Life policy.
Even with little rental income, his earnings from the IUL policy covered all mortgage payments and left profit to spare. In other words: he was able to make money on vacant rental properties.
By contrast, neighboring landlords (who’d paid down millions in principal), couldn’t extract cash fast enough. Many lost their properties or sold at deep discounts.
His result? Zero default, continued equity growth, and readiness to snap up bargains as the market rebounded.
Action Steps: How to Secure Vacancy-Proof Returns
Assess Your Existing Properties: Examine your loan-to-value ratios and identify where equity is “trapped.”
Strategically Refinance: Aim for 70% to 80% LTV, refinancing properties if beneficial, especially when rates are favorable.
Transfer Excess Equity to Liquid Accounts: Move released funds to a safe, tax-advantaged account (e.g., an IUL policy, or what I call an IUL Laser Fund).
Monitor Arbitrage: Track the difference between your cost of borrowing and returns from your liquid account—targeting a positive spread.
Prepare for Market Shifts: This way you can keep your funds accessible and ready to cover payments during vacancies, emergencies, or opportunities.
Counterpoint: Some may worry about complexity or fees associated with IULs or refinancing. While there are costs and a learning curve, expert guidance can help you structure this so the long-term net benefit outweighs initial effort.
The Bottom Line
Keeping your equity trapped in real estate might feel “safe,” but history shows that liquidity, leverage, and smart arbitrage separate the truly wealthy from the merely hopeful. Vacancies, market downturns, or disasters are just bumps in the road when your assets are always working for you, not locked away “on paper.” If you don’t act, you risk joining the ranks of landlords who lose everything in lean times, unable to access their own capital when needed most. If you want to make money on vacant rental properties, you need to consider alternate strategies that can help you take advantage of liquidity and arbitrage.
FAQs
How can I make money from a vacant rental property? By keeping your equity liquid and using positive arbitrage, in market up years, you can earn returns from invested funds even when your property isn’t generating rent.
What is equity separation in real estate investing? It’s the strategy of keeping your ownership equity in a safety net account instead of tying it up inside the property, allowing access and growth.
Does refinancing increase my risk as a landlord? Refinancing at prudent LTVs (like 70% to 80%) can provide liquidity without excessive risk—just ensure your other financial strategies are secure and growing.
Is mortgage interest always tax-deductible on rental properties? Generally, yes, but consult your CPA for current tax laws and compliance specifics.
What’s the best place to keep separated equity? Many savvy investors use Indexed Universal Life (IUL) policies (also called IUL Laser Funds) for safety, tax-free growth, and easy access.
What if interest rates rise after I refinance? If your other financial vehicles are earning higher rates than you’re paying in mortgage interest, a positive spread can still be achieved but is not guaranteed—so review your strategy regularly.
Can I use this strategy with residential and commercial properties? Yes, equity separation and arbitrage work for both residential rentals and commercial properties.
What happens if my property’s value declines? If your equity is outside the property, you avoid direct loss—but always adjust leverage based on market conditions.
Isn’t paying off my mortgage the safest route? It reduces some risks but exposes you to liquidity traps and lost investment opportunity—properly structured leverage can offer greater protection.
Where can I learn more about liquidity and arbitrage? Order your free copy of my book, The LASER Fund, at laserfund.com (just cover shipping).
Click here to watch Doug explain these concepts on his YouTube Channel today.
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