Owning your primary residence is a liability, but there’s a tool you can use to transform that liability into a vehicle for purchase performing assets. Smart investors know how to leverage, and this strategy can accelerate your real estate portfolio growth.
In this post, I’m sharing one of my favorite strategies for acquiring rental real estate—using a HELOC! You’ll learn about the incredible benefits of this strategy, including the power of simple interest and increasing your home equity. If you own your primary residence, this could be a great option for you.
A home equity line of credit, or a HELOC is often referred to as a second mortgage. When you take out a HELOC, the bank allows you access to a sizeable amount of cash. A HELOC is a loan based on the amount of equity in your home.
For example, let’s say that your primary residence is worth $500,000, and the remaining balance on your mortgage is $200,000. In this scenario, you have $300,000 worth of equity.
You are able to get a loan on your equity, usually around 80% of value. In our scenario, 80% of $300,000 is $240,000! When you take out a HELOC, the bank gives you a checkbook and a debit card that you can use to make purchases.
Traditionally, a HELOC is used by homeowners to make home improvements, but there are no limits to your purchasing power. This is why a HELOC is a great strategy for purchasing real estate. You can turn your home equity into cash flowing rental properties, and your tenant makes the payments with their monthly rent. This is an especially powerful strategy because a HELOC is a revolving line of credit, you can rinse and repeat!