How Can You Leverage Your Home to Build Wealth Over Time?
You can use your current home’s equity to build your real estate portfolio.
With interest rates so low, demand so high, and the market value of homes rising so dramatically throughout 2020, a lot of people ask me whether they should sell their current home when they’re buying another property.
As always, the answer depends on your situation and whether you can qualify to buy that next home. It’s a question of whether you have enough equity and income to rent the home out and use that equity to put a down payment on another property. Thus, you’d be able to own two rental properties instead of needing to sell one house to buy another, and build wealth over time and retire early (if you’re earning enough passive income).
"It all starts with leveraging your current equity."
There are two ways to start building wealth this way. The first is to get a home equity line of credit (HELOC), which allows you to tap into your equity. The cool thing about a HELOC is that it’s not like an amortized mortgage. It involves simple interest that’s charged to your monthly balance—not compound interest that you have to pay back over time. As long as you have rental income coming in, you can use that to pay down the home equity line. Essentially, it’s like getting a free house because the second home you purchased is being paid off by the tenant(s), and your HELOC is being paid down by the tenant(s) in your first home. Basically, you’re leveraging one property to buy another.
This brings us to the second way of building wealth: the BRRRR Method (buy, rehab, rent, refinance, repeat). You can do a cash-out refinance and pull out all the money you invested for a down payment to buy another property. You can recycle the same money to keep buying properties, and your cash-on-cash return is potentially infinite.
It all starts with leveraging your current equity, and with interest rates under 3%, the time to do this is now. The day before I recorded this video, I locked in a rate of 2.875%. Rates this low allow you to get the owner-occupied rate.
So if you’ve owned your home for long enough and have paid down your loan balance, now’s the time to utilize the money you can pull out of that home.
As always, if you have questions about buying, selling, or investing in real estate, feel free to call or email me. I’d love to speak with you.