How to Use Your Home Equity
This truly is the secret to making money out of thin air! What do I mean?
Well, you know that home you own, the one that just doubled in value over the last 10 years, the one you’ve paid off half your mortgage on, well, the difference between the value of your home, and the amount of your mortgage, is called equity, and you can use that equity, but how?
Well, I myself back in 2013 had no idea what home equity was, nor how to use it. I had bought a home, owed about 100K on it, it was worth over 300K, and just assumed that was that.
Luckily, someone mentioned to me that I could borrow against the difference, borrow against this money I had made out of thin air, the equity in my home, and luckily, they were wise enough to tell me to invest in somewhere that made a better return than the interest on that borrowed money.
Well, watch until the end of this video and I will explain what I'm talking about.
As I said earlier, I had no idea what equity in my home was. I didn’t understand the term in relation to real estate to be honest, and I had an MBA. In business, I knew equity was the funds you put into it, the funds you invest, plus the net income your business generated, which when added with your liabilities totals your assets.
You know the famous equation:
ASSETS = LIABILITIES + OWNER’S EQUITY
But with real estate, what was equity?
Well, turns out, it’s the exact same thing, it’s the funds you put in, invest, your down payment, plus the increase in value of the property, if any, which just like in a business, is the net income.
And when you add your liabilities, your mortgage, it then equals your assets, which, would be the value of your home, the real estate.
So, let’s look at that equation using actual numbers.
You have the asset; the home, which you bought for 200,000, which then equals your liabilities; the mortgage/loan of say 160,000 + the equity; your down payment of 40,000.
200,000 = 160,000 + 40,000
Now, let’s look at the equation 10 years later, after your property has appreciated, increased in value, generated you an income!
Asset - 300,000 = liabilities - 140,000 + Equity - 160,000.
As you can see, your asset, the value of your home increased, and just like in business, the formula needs to balance, because assets always equals your liabilities plus equity.
And since your house appreciated, your asset, to balance on the other side of the question, your equity needs to increase, and this is your income.
So, when you think about it, the equity in your home is the exact same thing as the equity in a business, the funds you put in, plus the income it generated.
And just like in a business, you want to be able to use that net income, to grow your business, to make more income.
However, with real estate, many people aren’t aware of how to use that income, that equity that the home generated, to make more income.
So, how do you access this equity, this net income sitting in your home, which you can’t see like you can with a business, where the income a business generates comes from the revenue less expenses of the goods or services you sell, and you’re left with cash in your hand, or in your bank account.
Well, luckily there are these businesses called banks, whom will allow you to leverage that income, that equity, in your home.
And by leverage, I mean, the bank will loan you funds, plus interest, based on that income you’ve generated in your home.
And they can do this by giving you a home equity line of credit, leveraged against your income.
Now, many people don’t take advantage of this, instead focusing on paying down their original mortgage on the home, the liability, because increasing your liabilities, your debt, is scary.
But, if you think about it, if you were running a business, would you not take your income and try to grow the business, so you can make more income.
Of course not, you’re going to take the income you made and invest it in your business, increase marketing, buy more goods, to generate more sales and thus more income.
So why is owning a home any different.
It’s not, owning a home is just like running a business.
This is why I’m always preaching to people to look at real estate like a business.
Yes, your home is where you’re raising a family, a place you own and live, where you feel safe, but it’s still an investment, it’s still you investing your hard-earned money to buy the home.
So, a sound business decision would be to then use your investment, your home, and the income you generated in it through appreciation, to make more money.
And opening up a home equity line of credit at your bank, whom allow you to leverage this income, is how you can do this.
Just like a business though, you’re not going to go and spend your income on items that don’t help you grow your business, so the same goes with opening up a home equity line of credit.
You’re going to want to invest it in your business, to help it grow, so you can generate more income.
So, don’t be tempted to think you just got all this free money and want to go and splurge and buy a bunch of wants, a bunch of depreciating assets, such as a vehicle, or a fancy vacation.
No, you’re smarter than that, you’re going to take your income, and generate more income, by investing it, and a great way to invest it, is in real estate.
And why wouldn’t you, you’ve already had success by investing in your own home, why not continue making smart business decisions and invest in more real estate.
I know I know, owning a 2nd home is scary, and risky, but with the right systems and strategies and the help from someone like me, it is actually very easy.
So, to help you invest in a second property, to help you use your income wisely, to grow your real estate business, to grow your income, I’m offering you a chance to enroll in my REI bootcamp, for free.
WHAT TO DO NEXT: Enroll in Real Estate Investing Bootcamp