Search
  • Sean

Letting your home equity earn passive income

How to use a HELOC (Home equity line of credit) or Home Equity Loan to invest in real estate and let your money work for you.



Who:

- Have >25% equity in your personal home?

(ie: 100k home with a <75k mortgage)

- Want your money to earn more money (papa $ + mama $ = baby $)?

- Want to diversify your investments with Real Estate?

- Too busy to be active in Real Estate Investing?


What:

- You have worked hard to pay down your home mortgage, nice work! I hope to be where you are very soon.

- Now you essentially have a savings account by your home's equity. You earn appreciation (hopefully) minus yearly taxes and insurance while benefiting from a place to live.

- There is a way to unlock that equity, and use it to earn more!

- Here's an example:

1) 400k home

2) 200k mortgage

3) Most banks will let you take out a HELOC for up to 85% of the homes value.

400k*85%=340k-200k=140k HELOC

4) HELOC rates are currently about ~4%

5) Invest that 140k with a partner into a deal earning 7%.

6) Pocket the difference... over a year that would be:

$140,000*(7%-4%)=$4200

*Yes I know that's not a ton of cash, but YoY it will add up, plus you probably earned this in about 4 hours of actual work. I wish I made $1050/hour!


Where:

- Anywhere! Doing it local allows you to keep eyes on the project, however at a distance can work as well with monthly updates, pictures, and video walk-through's.


When:

- Now is great as the prime rate is low ~3.5%.

- Real Estate investors are always looking to team up with partners.


Why:

- How about why not? There is inherit risk in anything we do, however you can mitigate that risk by doing your homework:

* Your partner should always use the property as the collateral for the deal, that way your cash is protected from most unforeseen circumstances. (ie: your have 1st mortgage {note} on the property, and can always foreclose on it.)

* Always vet the person you are partnering with. Look for track record, character, and references.

* Getting a copy of the insurance coverage is smart.

* Driving by the property monthly is a good way to keep eyes on your investment. If you are investing at a distance, as for monthly updates with pictures.

* Lastly, make sure there is an end to the investment. usually 6 mo-1 year is common, some larger projects can last as long as 5 years.


- Using the above risk mitigation, you will be able to make your money earn more money, letting your cash do the work, so you don't have to. This gives you your time back to enjoy the things you love with the people you love.


39 views0 comments

Recent Posts

See All