hey it's Brandon and today I'm going to show you one of my favorite creative
strategies for investing in real estate using a HELOC! How would you like to
purchase real estate using no money out of your bank account
sounds like a late night TV scam doesn't it? Well my name is Brandon Turner host
of the BiggerPockets podcast and author of these books and today I'm going to show
you how a HELOC can allow you to do just that
stay tuned so when I say the word HELOC what comes to mind probably like a
little creature from Lord of the Rings or something compartment o space shuttle
maybe but really key lock simply stands for home equity line of credit and I'm
gonna show you how this simple lending tool can help you do more real estate
deals this year and hey as I go through this if you find it valuable just do me
a favor and click that little thumbs up button below the video it really helps
us reach more people and of course subscribe alright so let me explain how
a key lock works then how to use one to invest in real estate and the best way
to explain what a key lock is it's with an example all right so let's just say
you own a house cute kitchen for you you're cute spouse and you're cute kids
and your ugly dog now let's just say you owe the bank 80 grand on that house but
the houses got up and value job and maybe you just paid off some the house
too so it's actually worth like 200 grand so the difference between what the
property is worth and what you owe on it is known as equity equity is really
great because the more you have the more wealth you have right but normally in
order to access that equity you have to sell the property pay a real estate
agent pay closing costs all that so at the end of it you might end up losing
like 10% of whatever you sold it for let's do that for a second so to go to
our $200,000 house example you sold it you could lose like 20 grand in the
transaction to those fees now that would leave you with 180 grand but then you
got to pay off the loan right the mortgage that you had on it the initial
mortgage which we said was 80 thousand a hundred grand to invest if of course you
don't have any taxes to pay on that now let's look at an alternative way to
access that equity a home equity line of credit the home equity line of credit is
a low and usually a second mortgage added on top
of whatever your existing mortgage is and it kind of acts like this gigantic
credit card you get access to this big line of credit but you only pay when
you're using it and the interest rates actually way lower than a credit card
like sometimes under 5% though that rate is usually variable they see could go up
and down a little bit with interest rates so if you get a HELOC you now have
quick and easy access to capital when you need it but not paying when you're
not using it right all right so how much can you get well this gets kind of
interesting because some banks will allow you to take up today up to 90% of
the property's value and it includes your first mortgage of course so if you
have one so let's walk through that math I'll keep it simple I promise remember
earlier example we talked about a house worth 200 grand which means the bank if
they let us take 90 percent could give us up to one hundred and eighty thousand
dollars right for all the loans on the property so again if our mortgage was
eighty thousand and they're gonna let us take 180 total we take 180 minus the 80
and we have a hundred thousand dollars that we can pull out in a home equity
line of credit now to that hundred thousand dollars number sound familiar
it should it's the same amount I mentioned earlier when we talked about
the money that we'd likely have after selling the property so in other words
potentially I can have the same amount of leftover money as if I was selling
the property but I don't actually have to sell it I can keep it and I can now
use that hundred thousand to invest in real estate now I'm sure you can find
some use for a hundred grand to invest in real estate right maybe you use it to
buy lower price blue collar homes in your area maybe use it as a down payment
on a larger apartment building or maybe you use it as a you know capital the
capital needed to bur your next real estate deal of course bird stands for
buy rehab rent and Finance repeat it's a strategy where you find a fixer-upper
rental property you buy it with short-term funds like a HELOC you fix it
up you then go to a bank and get a normal fixed-rate first mortgage on the
newly rehab property paying off the HELOC giving you that short-term money
back and then you can repeat the process over and over hey by the way I'm for
more on the bird strategy check out the video here here wherever it is or just
search YouTube for BIR BiggerPockets and you'll find it I hope you enjoyed this
video if you did can you do me a favor click that little thumbs up button
subscribe to our channel for more real estate and personal finance related
video and of course come hang out come hang
out with us over on BiggerPockets and of course to learn more about creative
finance including helix home equity installment loans house hacking
partnerships lease options seller financing and more consider picking up a
copy of my first full-length book launched a few years ago called the book
on investing in real estate with no and low money down which you can get at
bigger pockets complex book store or wherever books or soul or pirate it off
the internet but don't do that alright for bigger pockets calm my name is
Brandon Turner signing off