Can I Use My Home Equity To Buy Real Estate?

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 ask 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 401 Ks or IRAs. Maybe they are but due to time, the value of 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 of a 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 $100,000 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 3 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 really 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 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 happens 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're going 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 of 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 30-year mortgage, 5% of your payment 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 going to 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%. This is 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. Double-check the numbers. Fact check. 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, 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 at 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 it 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 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 instruction 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.