Can I use my home equity to invest in real estate? There's a lot of people that
have this question but a lot of people don't even think it's possible because
like, "I don't know, I'll take equity out of my home. It'll
increase my mortgage. Does it even make sense? Can I put it in real estate
that'll work?" Today, we're going to explore whether that's
possible if it works. And if it does, how you would do it?
So, people asked on a pretty frequent basis. What if I have equity in my home?
Can I use that to invest in real estate? Let's talk about what home equity is and
then let's talk about how yes you can use it to invest in real estate and what
does that actually look like. So, for many people, they're not putting money in
401ks or IRAs, maybe they are but due to time, the value their home goes up and
then they get equity. Here's what equity is. "Well, Kris. I bought my house. When I
bought it, it was valued at $200,000. I put a small down payment and I owe
$180,000." The difference here between what you owe and
the value, that 20,000 difference is what's called equity. But
you wait 5 or 10 years and all the sudden it's like, "Just kidding. The house
has gone up in value." Now, it's worth $280,000
But guess what I've also been paying it down and now I only
owe $160,000. Well, we had a $20,000 equity
here. Now, the difference between 280 and 160, is $120,000.
Do you see the big gap there? So, the question is, "Wait a second? Are you
saying that if I sold my house today for 280,000 and paid
off my mortgage that after closing costs I might have $120,000
left over?" Yes, you would. And could you invest that? Yes. But you don't have to
sell your house to get the money out of it.
You know, as long as you still have relatively some good credit, these are
some options that you actually have: You can go to the bank and do either a cash
out refinance or you can do what's called a home equity line of credit.
Now, this costs nothing. And a cash out refinance, if you're going to sell the home
in three or 4 years do this option. If you're going to hold it long term, this is
usually a better locked-in rate option. But basically there are 2 different
loan options for getting money out. And what the banks will typically do is say...
"Well, because this is a primary residence, meaning, you live in it. It's not an
investment property then we're only going to allow you to take out up to maybe
90% of the value of the home or maybe 80%." So, let's just say
that we owe 160 and let's say we have a value of 280. Some banks might
say you can go up to 90% of the value but let's just say more conservatively,
you can only go up to 80% of the value. So, what's 80% of $280,000?
Well, it's roughly just a little more than 220 grand. Now, by the way, I did that
in my head real quick. It's something like, "How'd you do that?"
Well, 10% of $280,000 is 28 grand. I just rounded up, 30. But that's just 10%. So,
another 10% to make 20% is 60 grand. Well, 280 minus 60 is to 220. I owe 160, the bank will
let me borrow up to 220. What's the difference between 160 and 220? That
right there my friends is $60,000. So, either through a cash out or a HELOC, I
now all of a sudden have $60,000. If I do a cash out refinance and I take this
money out, guess what how's my payment? It goes up. So, you need to put the $60,000
into real estate that produces enough cash flow that is bigger than whatever
your payment went up. There's a general rule of thumb. As long as interest rates
are under 8%, you can almost always borrow money and put it into the right
cash flowing real estate and have it be more than the cost of borrowing. Just be
aware that you're borrowing money and there's a cost and we go to put it in
real estate that produces more than the rate at which you borrowed. If it's a
home equity line, it's different than a cash out because it's like a revolving
line of credit. If I don't use it, I don't pay. So, that is a benefit of the home
equity line. Because you might find a property that only takes 30 grand. And be
like, "Oh, I'm only going to use half of my HELOC and I'm only going to have half a
payment to make. And the other money is available I could use it but I don't
have to use it. That makes sense? So, all of a sudden, it's like, "Okay, well what can
I do with this money?" Well, if I were to go into one of my cash flow markets... For
example, I've got markets where I can purchase properties that average closer
to a 9% cash on cash. Now by the way, that is a really high return in the game of
real estate. Because in addition, let's say that I'm also picking up 5%
appreciation. And then I'm also paying the mortgage down. When you get a third
of your mortgage, your 5% your pay is actually going towards principal
reduction. So, you have another 5%. All of a sudden, that's at 19%
I on average get up to 25 plus percent. So, I want to give you an
understanding that if the cost of my money here is let's say it's 6%
and my cash on cash is 9%, meaning the cash that I actually get as long as
this number is bigger than this number, then I'm always gonna have more money
left over at the end of the day. Does that make sense?
Number 2, when I factor in these benefits, I'm borrowing money at 6% and
I'm putting it in let's say 2 homes where I'm now earning let's just call it
25%. There's going to sound stupid but I promise it's not condescending. Which
number is bigger 25% or 6%? The 25% is bigger and because the cash flow
component can cover the overall cost of the monthly cost here, the difference in
the arbitrage here, there's a 19% difference. You'd be crazy not to do this.
Taking money out of equity in your home and putting it to work is a super smart
thing to do. And for some of you it only makes sense if you can have a
professional team that will do it all for you, take care of it, take care of the
loan. Find the best deals, manage it all and that's also an option that you have.
In fact, if you click the link below, you can actually talk with my team and say,
"Hey, I have some equity in my home and I want to put it into investment grade
real estate that can really get me ahead. Because right now, I'm not going to get
where I want to go in life and I want to get there a lot faster." And if that's you,
if that resonates, if that makes sense, this could be honestly a perfect
strategy for you. When I bought my very first house, I bought it with equity. And
I took a home equity line out a 20 grand and I put it in my next property. Friends,
this is how I created wealth. And then I use the equity in that house and guess
what I did later? I put in another one. And then I moved out of my primary
residence and rented it out as its own cash cow and bought a new primary
residence for very little down that came from money from my investments that
equity bought more. Like, it was just an awesome never-ending cycle. And so, even
though real estate can be overwhelming at first, if you have a team of experts
take you by the hand and help you, you can figure it out or you can read some
books or be a loyal subscriber and watch your daily videos here. Eat your Wheaties
and basically get smarter every single day. So, those are options that you
have available. If you want to tap into a team that can give you instructions so
you can do it yourself or even do it for you you'll find that in the link below.
Can you take home equity and turn it into more real estate? Yes. Should you?
Likely. If you're ready to take action, you know how to do that. Subscribe and I
will see you on tomorrow's video.