Your Home: One of the Best Investment Vehicles Available to You
By Ryan P. Coyle
Did you know that your home has the power to make you rich? Can you imagine accumulating a portfolio of 5 investment properties and having them paid off in 20-25 years? Not only is your home one of your best assets it is also one of the most powerful financial vehicles available to you for generating wealth. Given its long-term strength and stability, real estate is a necessary part of any successful financial strategy and by accessing the equity in your own home, building a portfolio of investment properties can be a reality for anyone.
There is no right or wrong way to do this and choosing an approach depends on a person’s particular situation but what is important to know, is that people who want to invest in real estate have many options available to them.
Here is a breakdown of some of the key strategies for taking equity out of your home so that you can get started on building wealth through real estate;
1. Home Equity Line of Credit (HELOC)
A HELOC is a line of credit that is secured against your property. The bank appraises the value of your home and lends you funds dependent on it’s value. Most people are very familiar with a HELOC as a loan that can be used for consolidating debts or that can be used for doing renovations to their home, etc. However, what many people don’t know is that the funds from a HELOC can be used as a down payment on an investment property which can help them build their net worth and generate wealth. No only that, if a person uses this method to invest in real estate, the loan interest is tax deductible!
2. Partial Refinance- Through a blend and extend
Another way to take out the equity in your home without impacting your existing mortgage is with a blend and extend strategy through the bank that holds your first mortgage on the property.
Let’s say that you have a property that is worth $600,000 with a mortgage of $400,00. The lender will give you 80% of the appraised value of your home in funds which equates to $500,000. Since you currently have a mortgage of $400,000, this means that you now have access to $80,000. Your bank can either offer you the funds through a HELOC, a secured line or another mortgage. These funds can be used as a down payment on an investment property.
3. Full Mortgage Refinance
A full refinance means that you are looking to take out equity by breaking the current mortgage and increasing its current balance by the amount that you’re taking out. If your mortgage is up for renewal or there are minimal penalties associated with breaking the mortgage, a refinance is a great option to consider.
4. Equity Takeout Beyond What Traditional Lenders Offer
The maximum equity take out with traditional lenders can be done through a refinance of up to 80 percent of the appraised value of your home. Any equity take out above 80 percent can be achieved through private funding. Some lenders will offer up to 90 percent using this method, depending on your financial situation and the value of your property.
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