Financial Freedom Through Real Estate - My Interview on the Real Wealth Show

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What does financial freedom mean to you? Many people dream about what they would do if they won the lottery, or had a million dollars. While those scenarios are pretty unlikely, there's a realistic plan you can use to create financial freedom. 

To me, financial freedom simply means having your expenses covered. It means that if you were to lose your job, your bills would still be paid, and your kids could still eat. On episode 577 of the Real Wealth Show with Kathy Fettke, I talked about my route to financial freedom, and how you can replicate it. 

I also discussed the principles outlined in my new book, How to Pay Off Your Mortgage in 5 Years, how to use a HELOC to purchase rental properties, and why I don't invest in A class neighborhoods.  

Tune into episode 577 of the Real Wealth Show with Kathy Fettke to learn: 

  • What is the difference between a HELOC and a home equity loan? 
  • Where do I purchase the bulk of my rental properties?
  • What is the importance of having a mentor in real estate?
  • How does code enforcement effect investors?
  • How do you appropriately upgrade a rental property?
  • What types of neighborhoods are most favorable for investors?
  • How do you create true financial freedom? 
  • And more! 
 What does financial freedom mean to you? Many people dream about what they would do if they won the lottery, or had a million dollars. While those scenarios are pretty unlikely, there's a realistic plan you can use to create financial freedom. 

How to Pay Off Your Mortgage with a HELOC

What would your life be like if you had no mortgage? Would you accelerate your investing strategy, pay off debt, or take more family vacations? A few years ago, Natali and I discovered an incredible means to pay off our primary residence. Now we utilize this strategy consistently in order to meet our ultimate goal: purchasing more buy and hold real estate.

Using a HELOC, or home equity line of credit, to pay off your mortgage is a way to create equity in your primary home. Doing so allows you to pay down your balance quickly. More importantly, it allows us to leverage our funds in order to purchase cash flowing real estate.

The reason this works is because the loan on your house is amortized, meaning the value of the home is gradually paid off. Typically on a mortgage, you’re paying off the interest for the first years of the loan. Principle is not paid off until later.

But if you’re able to put a large amount of funds from a HELOC toward your mortgage, you can designate that money to go specifically toward your principle balance. Then going forward, a larger percentage of your monthly payment can be applied toward principle, instead of primarily interest.

Traditionally, you would pay off your mortgage in 15-30 years, but with enough discipline, this system allows you to do so in 5 years or less. Natali and I have utilized this strategy, and it works! If you want a step-by-step guide on exactly how to employ this strategy, pick up our new book on Amazon! 

 What would your life be like if you had no mortgage? Would you accelerate your investing strategy, pay off debt, or take more family vacations? A few years ago, Natali and I discovered an incredible means to pay off our primary residence.

Home Equity Loan or Home Equity Line of Credit?

One of the best ways to rapidly build your real estate portfolio is to use the power of leverage. And if you own your primary residence, taking a loan based off of the equity can be immensely useful. There are a few ways to utilize this strategy, and many of you have asked whether a home equity loan or a HELOC is a better strategy.

Home equity loans and home equity lines of credit are similar in that they both allow you to borrow against the amount of equity in your home. However, the two financial products have some main differences you’ll want to consider.

A home equity loan gives you access to one lump sum of money. This is a fairly traditional loan. The bank looks at the value of the home and gives you a loan in one amount.

A home equity line of credit, or HELOC, works a little differently. A HELOC is a revolving line of credit, meaning it works similarly to a credit card. A HELOC can typically be used for around ten years. It has a low introductory rate, and uses simple interest.

Personally, I like to employ the strategy of using a HELOC because it is repeatable and reusable! It can be used like a traditional checking account; you will even be issued a check card and a checkbook. You can learn more about using a HELOC as an investment tool here! 

 One of the best ways to rapidly build your real estate portfolio is to use the power of leverage. And if you own your primary residence, taking a loan based off of the equity can be immensely useful. There are a few ways to utilize this strategy, and many of you have asked whether a home equity loan or a HELOC is a better strategy.

Evaluating What You Own Vs. What You Owe

Leveraging means taking what you own, and using it as collateral to make further purchases. In real estate, leveraging is how successful investors are able to quickly and effectively grow massive portfolios. 

If you've seen our video on the BRRRR Method, you know how powerful this strategy can be! But it rarely just falls into place, it's something you should strategically plan. You never want to be over leveraged or acquire crushing debt.

In order to leverage well, it’s imperative that you know where you stand. The first thing you should do is assess all of your liabilities. This includes all of your debts. Include the remaining balance on your mortgage and car loans, any credit card debt, a HELOC, etc.

Then determine what your assets are, and how much they are worth. Include your real estate investments, cash accounts, stocks, and 401k. Other assets could be college savings accounts, vehicles you own, and art. Include anything that is cash, or could be sold for cash.

The next step is to subtract your total assets from your total liabilities to calculate your total net worth. In our family, this is something we do often to ensure we are on track to meeting our goals.

Personally, we follow the advice of Natali’s dad, who recommends that you should own up to 30% of your portfolio, and be no more leveraged than 60-70%. To hear more about how we balance assets vs. liabilities, check out episode 106 of Investing in Real Estate! 

 Leveraging means taking what you own, and using it as collateral to make further purchases. In real estate, leveraging is how successful investors are able to quickly and effectively grow massive portfolios. But you've got to know your net worth to do this effectively.

Five Ways to Creatively Finance Your Next Real Estate Deal

You might think that investing is only about the numbers, but in order to grow your portfolio, you’ll need to put on your thinking hat and be creative! The beauty of investing in real estate is that there are many ways to finance a deal. It's important to be open-minded, and receptive to the possibilities.

When we talk about different strategies for investing, it’s important to note that not every method will be applicable to your unique situation. We all have different financial backgrounds and circumstances. We don’t think that a 401k loan or a HELOC is appropriate for each investor. They’re great strategies, but they’re not for everyone.

Disclaimer: we are not financial advisors. We don’t know what is right for you, your family, or your situation. We’re simply a family that educates ourselves on different strategies, and executes the ones that we feel are most fitting. We are trying to share that education with you. We are in no way trying to tell you what you should do.

But that’s what is so fantastic about investing in real estate! There’s no one right path to follow. There are so many ways for you to meet your goals!

1)  One of the most popular ways to begin investing in real estate is by taking out a HELOC. For many people, it’s a great option to take out a loan based on the value of equity in their primary mortgage. This can also be done on existing rental properties. Typically, a HELOC is a great bank product, and it's accessible to many people. Here’s how to use your HELOC as an investment tool.

2) Another great way to invest is through taking a 401k loan. This is a strategy I use yearly. If you have a 401k through your employer, your plan likely allows you to take out one loan per year. This is a fantastic strategy, because you’re in essence, paying the interest back to yourself. You can learn more about this strategy here.

3) Investing inside a self-directed IRA can be a killer strategy for many investors. A self-directed IRA is an investment type that allows the owner control over where their money performs. Being strategic within a self-directed IRA allows the investor many possibilities, one of which is a real estate investment! Check out this guest post by Dmitriy Fomichenko from Sense Financial.

4) Business lines of credit can be an incredible means to invest. A business credit card is in no way linked to your personal credit, and has an introductory rate of zero percent. We’ve teamed with a company called Fund&Grow, and you can hear all about their process here.  

5) Private money, or money you borrow on your own terms, is another great way to get started. This could be money you borrow from a friend, relative, or another investor. I have an entire playlist on YouTube dedicated to finding private money.

 The beauty of investing in real estate is that there are many ways to finance a deal. It's important to be open-minded, and receptive to the possibilities. | Make money with real estate | Rental properties

How to Use a Home Equity Line of Credit as an Investment Tool

Do you own your primary residence? If so, there’s a helpful investing tool you might be overlooking. Smart investors know how to leverage, and this strategy can accelerate your real estate portfolio growth.

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 $100,000, and the remaining balance on your mortgage is $50,000. In this scenario, you have $50,000 worth of equity.

You are able to get a loan on your equity, usually between 80-90% of value. In our scenario, 90% of $50,000 is $45,000! When you take out a HELOC, the bank gives you a checkbook and a debit card. These funds are yours to use as you please.

Traditionally, a HELOC is used by homeowners to make home improvements, but there are no limits. You could buy a car, or pay off your credit cards. We’ve even used a HELOC to pay down our primary mortgage!

But what we’re talking about today is using a home equity line to purchase rental real estate. Think about our scenario above. $45,000 is just enough to purchase a cash-flowing property in a stable market, and ultimately be on your way to attaining financial freedom.

 How to use a HELOC as an investment tool - Smart investors know how to leverage, and this strategy can accelerate your real estate portfolio growth.

Banks love to issue home equity lines of credit, because it’s a way for them to make money via interest. Many HELOCS are offered at an introductory rate in the first year. I always advise that people shop around at local banks and credit unions, and try to maximize their line of credit in the first year.