Can I Use My Home Equity To Buy Real Estate? - YouTube

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.