What Is Equity In A Home

Kris Krohn here with Limitless TV. And guess what? Today, we're going to be answering that question that so many of you are asking. What is equity? And oh my goodness, this is so important 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 going to 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, going to draw you a picture here that I think you're going to like. This, guess what it is? It's a house. I want to 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 principles getting paid down. And now, after 15 years, I owe $75,000 on the house. So, it has a value today of $100,000. I owe 75. And if this is my meter of 0, 25, 50% paid off, 75 or 100%. Take a look at this. Right now, I have a gap of what I owe is 75 and what it's worth is 100. And there's a gap right there of $25,000. It also has to be 25%. I've got a 25% equity position in this house. Now, let's say that I live in the house longer. And I receive a little inheritance and I decide that I pay my house down to $30,000. How much equity do I have? Well, I owe 30,000. It's worth 100,000. So, guess what? There's a... There's an 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 owned was 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 where the supplies for 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 and it's worth 300, then how much equity is there? $100,000, okay? 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 costs and seller costs and this is and that's. 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 could go to my bank and say, I don't want to sell the house but I want to 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 a credit card linked to this that would allow me to go up to 240. 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 like to buy a house for a hundred grand that's worth a hundred grand. You know why? Because I didn't I didn't walk into any magic money when I do that transaction. That's how novices transact. They might be doing that because they see the cash flow. I look for 2 primal primary basics when I look at any deal. Number 1, what is its equity? Number 2, what is its cash flow? Let me give you a realistic scenario to kind of 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. Okay, good job. $30,000 is how much equity I have. And this is what percentage of a hundred and fifty thousand value? 20%. My equity isn't just a... Cannot just be reflected in a financial amount but also it expresses in 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 want to know how much equity and what is its equity position. These are those numbers. And now, you are a master at equity. Some might say, go build some equity. I'm going to invite you to go find it. Because it's out there and it's available. Thank you so much for joining us today on Limitless TV. And tomorrow, we're going to 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.