Kris Krohn here with Limiltess TV and guess what?
Today we're gonna be answering that question that so many of you are asking, what is equity?
And oh my goodness this is so important for you to understand, you know why?
When I bought my very first house it had $40,000 of equity.
Guess what that means?
That meant that I found a treasure chest filled with $40,000 of booty in it and that's equity.
We're gonna teach you what it is, how to leverage it, how to use it, how to grow it to get you
on that way and path to financial freedom.
What is equity?
Alright, gonna draw you a picture here that I think you're gonna like.
This,
guess what it is?
It's a house!
Let me tell you something about this house.
This house has a value of $100,000.
But
I moved into it 15 years ago and I've been paying my mortgage and the principals
are getting paid down and how after 15 years, I owe $75,000 on the house.
So,
it has a value today of $100,000.
I owe $75,000 and if this is my meter, I have 0, 25%, 50%, 75%, 100%.
Take a look at this.
Right now,
I have a gap of what I owe is $75,000 and what it's worth is $100,000.
There's a gap right there of $25,000,
it also has to be 25%.
I've got a 25% equity position on this house.
Now, let's say that I live in the house longer
and I receive a little inheritance.
I decide that I pay my house down to
$30,000.
How much equity do I have?
Well I owe $30,00.
It's worth $100,000
so guess what?
There's a equity position here of $70,000.
Equity is the difference between what you owe and what it's worth.
and that's also what you use to calculate your net worth.
So for example, if all I own is this asset and nothing else and someone said, well what
are you worth?
Well I don't know, my job I make $40,000 a year.
Cool! but what are you worth?
Well I'm worth $70,000
How'd you arrive at that?
Well, my house is worth $100,000 I owe $30,000 on it, I have $70,000 of equity.
And that also translates in my net worth.
So here's what this applies in real estate investing that I absolutely love.
Let's say that we were treasure hunting in the market.
Because this is the way I use that term equity in all my videos.
And let's say that I found a home that I was able to purchase for $200,000 and let's say
that it had a value of $300,000.
If I can buy it for $200,000 and it's worth $300,000 how much equity is there?
$100,000
Ok?
And, because the moment I buy it for $200,000 I'm worth that much more money.
If I were to sell it in the market for $300,000, you know other than some cost, some seller
cost, there's roughly how much money that I would get?
$100,000.
So equity is not always usable until you do something like sell the asset or I can go
to my bank and say, I don't wanna sell the house but I wanna refinance it with a home
equity line of credit.
And the bank says, well we'll give you a home equity line up to $240,000.
So check it out.
I owe $200,000.
It's worth $300,000, they'll give me a checkbook or credit card linked to this that will allow
me to go up to $240,000.
So the difference between what I purchased it for which is what I owe and this line of
credit of $240,000 there's a gap there of $40,000.
That's $40,000 that I could use as a down payment on another house.
I could use it to buy something different.
I could use it to invest with.
And when I use it, I will add my payment and I will decrease my equity.
So equity is that amount that you have.
And where I really utilize this is in treasure hunting because, you know what I don't really
like to buy a house for $100,000 that's worth $100,000.
You know why? because I didn't walk in to any magic money when I do that transaction.
That's how novices transact.
They might be doing that because they see the cashflow.
I look for 2 primal primary basics when I look at any deal, Number one, what is it's
equity?
Number two, what is it's cash flow?
Let me give you a realistic scenario to kinda finish up this video with to give you an idea.
I just finished looking at a house that has a value
of $150,000.
It's a home that I can purchase
for $120,000.
How much equity is there?
$30,000
You're catching up fast.
Ok good job.
$30,000 is how much equity I have and this is what percentage of $150,000 value?
20%
My equity isn't just a, cannot just be reflected in a financial amount but also it expresses
a percentage.
And this is what's really important to me when I'm walking into a deal.
Because this house and this scenario has $30,000 of equity or a 20% equity position.
So when I look at a deal I wanna know how much equity and what is it's equity position
and these are those numbers and now you are a master at equity.
Some might say, go build some equity.
I'm gonna invite you to go find it cause it's out there and it's available.
Thank you so much for joining us today on Limitless TV.
And tomorrow, we're gonna be talking about how to love yourself when you don't know how.
This is something that people are out there searching for.
They want to get this answer to how do you step really into that feeling of self love.
Come in tomorrow.