I bet you have more money than you think. I have heard people say that they wish they could invest in real estate, but they just don’t have enough money to do so. If you own a house, you likely have more money available to invest than you actually think…
What I’m referring to is the magic of home equity. Essentially, you can use your home as collateral in order to gain access to a line of credit at rates that make investing with it a no brainer!
What is a home equity line of credit (HELOC)?
A home equity line of credit (also known as a HELOC, pronounced Hee-lock) is a loan in which a lender agrees to lend a maximum amount, where the collateral is your equity in your house.
For further understanding, the equity in your home is the difference between the value of your home (as determined by an appraiser) and the remaining amount owed on your mortgage. Banks will typically give you 80% of this amount in the form of a home equity line of credit.
Here is some simple math as an example:
- Your home is appraised at $500,000
- Your current mortgage owing is: $200,000
- With equity in your home of $300,000, you may qualify for a home equity line of credit of $240,000 ($300,000 x 80%)
How does it work?
Once you are approved for a home equity line of credit, the funds will be available for use any time. You only pay interest on it if you use it. It’s similar to a credit card (except much cheaper to use!); you only pay interest on the balance being used.
How can you make money with it?
With this newly available money, you can use it to invest in a number of multiple real estate investment options.
If you are not using it to invest, consider it ‘dead’ equity. If you use it to invest to generate a return greater than the interest on the HELOC, consider it working equity.
For some, this may be a difficult pill to swallow. Many us have been taught to pay-off our debts because all debt is bad debt. To be a successful investor you must distinguish between good and bad debt. Leverage the bank’s money as much as you can. This is called leverage, and to expedite the growth of your investment portfolio, leverage should play a role.
Bad debt is debt that is not making you any money and likely costing you money. Good debt, and yes, there is definitely good debt – is debt that is making you money. With HELOC’s typically costing about 3.5% to 4% (2018) to use – there are many options for investors to make a safe and secure profit on the bank’s money.
What should you do next?
To access this available credit, contact your bank or mortgage broker. They will be able to walk you through the steps to take advantage of this money.
If you need advice on how to approach any of these professionals, I am more than happy to help! Leave a comment and I will point you in the right direction. I am not a mortgage broker or professional, but I’ve helped many people – including myself – gain access to this extra source of funds for investing purposes.