Real estate investment is a lucrative venture that can provide financial security and build generational wealth. One way to kickstart your real estate investment journey is by leveraging your home equity. Home equity is the portion of your home’s value that you own outright, and it can be a powerful tool for financing your investment endeavors.
Leveraging your home equity to start a real estate investment journey can be a strategic financial move, but it’s essential to approach it with careful planning and consideration. By assessing your financial situation, setting clear investment goals, and conducting thorough research, you can make informed decisions that align with your long-term objectives.
What is home equity?
Home equity is the difference between your home’s current market value and the outstanding balance on your mortgage. For example, if your home is worth $300,000, and you owe $200,000 on your mortgage, your home equity is $100,000 ($300,000 – $200,000). Home equity typically increases over time as you make mortgage payments and as your home appreciates in value.
How can home equity be used to start investing in real estate?
Investing in real estate takes lots of cash upfront, right? Well, not exactly. You need capitol to work with, but you don’t necessarily need to save up a huge down payment.
Using your home equity is one way to access a significant amount of capital, often at a lower interest rate compared to other financing options like personal loans or credit cards. You can access your home equity in multiple ways:
- Home Equity Line of Credit (HELOC): A HELOC allows you to borrow funds as needed, making it flexible for various investment opportunities.
- Home Equity Loan: This is a lump-sum loan with a fixed interest rate. It may be suitable for a specific investment project with known costs.
- Cash-Out Refinance: Refinancing your mortgage to access your home’s equity can provide a lump sum to invest. Be mindful of potentially higher mortgage payments.
By borrowing your own home equity, you can leverage your current investment in your personal home toward the investment of an income property. Home equity loans or lines of credit generally come with lower interest rates than unsecured loans, making them a cost-effective option for financing your real estate investments.
Can I get into real estate investing without using home equity?
The short answer is: Yes! While leveraging your home equity, or a variety of other financing tools, can be a great way to get into real estate investing, it’s not the only way.
If you do not have substantial home equity to work with, or you do not want to leverage your equity in this way, we have another option for you.
Consider instead taking out a cash flow mortgage. This is a type of loan that we offer to real estate investors, who qualify based on the profit potential of the income property rather than on their personal finances.
In a cash flow mortgage, the potential rental income is estimated by looking at comparable properties in the area, and then the mortgage is approved based on whether than rental income will cover the monthly mortgage. Other than your credit score, we won’t need to see all your personal documents. Because the loan is given on the basis of the property’s potential for income, you won’t need to provide tax returns, pay stubs, or anything like that.
Want to learn more about investing in real estate with a cash flow mortgage? We are here to help answer any of your questions, so contact us any time.