Owning your own home has been touted as the American Dream, but the truth is that a mortgage is a huge liability. Instead of putting money in your pocket every month, your mortgage does the complete opposite. But if your goal is to make the numbers on your balance sheet trend in a positive direction, you don’t necessarily have to sell your home. But don’t panic yet—there’s a strategy you can use in order to transform that liability into a vehicle for purchase assets. Savvy investors know the importance of leveraging, and this strategy is perfect for expanding your portfolio!
In this post, we’re sharing one of our favorite strategies for acquiring performing assets—leveraging your home’s equity! You’ll learn about the endless benefits of using a HELOC to purchase investments, the power of utilizing simple interest, and how to increase the equity in your home. If you own your primary residence, this strategy could be right for you!
A home equity line of credit (HELOC) is often referred to as a second mortgage. When you apply for this type of loan at your bank, upon approval you’ll be granted access to a credit line that is based on the amount of equity available in your home.
For example, let’s say your home is worth $500,000, with a remaining mortgage balance of $200,000. In this scenario, the bank would allow you to borrow against your $300,000 worth of equity.
In most cases, a bank will allow you to borrow up to 80% of the value of your equity. In our scenario, 80% of $300,000 is $240,000! The bank will issue you a checkbook and a debit card which you can use to make purchases.
The HELOC is intended for homeowners to access funds for home improvements, but there are not strict stipulations to what the funds can be used for. Because of this, the HELOC is an amazing tool for purchasing real estate investments. You can turn your home’s equity it into cash flowing rental properties (or other investments of your choosing). Because this type of loan is a revolving line of credit (similar to a credit card), this is a repeatable strategy you can use to expand your portfolio.
Want to learn more about utilizing this strategy on your own wealth-building journey? Check out this Q&A session we did on our YouTube channel!
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