How to Go From Being a Homeowner to an Investor – Episode 1020

Most Americans have been sold the idea of the quintessential American Dream… the vision of owning a home with a white picket fence. In fact, a survey released by Bankrate showed that 74% of respondents cited homeownership as the pinnacle of success, outranking education, retirement, family, and career achievements.

But owning your home is much different than owning a performing asset like a rental property. Luckily, there’s an easy way to make the transition from homeowner to investor, and that’s what you’re going to learn on this episode of Investing in Real Estate!

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Your home is an asset, but it’s not a performing asset, and that’s an important distinction that most people don’t understand. A performing asset is anything that produces cash flow. Does your home make you money every month? Probably not… In fact, it actually takes money away from your monthly income through mortgage payments, other bills, and improvements.

However, if you own your home, you’ve got a couple of good things going for you. 1) You likely have some level of financial intelligence because you were able to qualify for a mortgage and 2) even though your home isn’t technically a performing asset, it likely has a key benefit you can take advantage of to build wealth and create performing assets: equity.

Equity is the market value of your home minus the amount of money that is owed on the mortgage. Here’s a quick example: if your home is worth $250,000 and the remaining balance on your mortgage is $200,000, you would have $50,000 in equity.

Equity increases as you pay down the balance of your mortgage, increase the property value through improvements, as well as when the value of your home goes up naturally. And because homes have appreciated so much in recent years, you probably have a decent chunk of equity at your disposal.

I always say that you can’t eat equity, which means putting your equity to work can allow you far more benefits than just letting it build up, untapped. Having available equity on your home is beneficial for many reasons, one of which is that you can use it to fund your investments.

Through home equity lines of credit, home equity loans, and cash out refinances, you can access your home equity and use it for almost any purpose… including investing in real estate. This is the quickest route to go from homeowner to investor.

Here’s what you need to do to create a performing asset with your home equity:

1. Calculate your equity. Whether you sit down at a desk with a banker or use a simple calculator online, you’ll need to know approximately how much equity is at your disposal. Most banking products will allow you access to around 80% of your home’s equity. Determine if you have enough equity built up for investing to be a viable option. In most cases, you would at least want to have enough to cover a down payment on a rental property before you access your home equity.
2. Ensure that the numbers make sense. What types of returns can you get on your investment? What kind of interest rate would you be paying for your home equity? Run your numbers to be sure you will be able to cover your new payment.
3. Consider how this money move will impact your overall financial snapshot. How can it help you reach your goals? Think long-term: what will adding an investment property help you accomplish? How will it influence your net worth? And on the other hand, how will taking out another loan impact other factors like your credit score and your debt-to-income ratio? Will you be able to take on another payment? There is a lot to consider here, so I urge you to not make this decision lightly.
4. Find the banking product that works for you. There are a few ways to access your home equity, including home equity loans, home equity lines of credit, and cash out refinances. My personal favorite is the home equity line of credit, but your mileage may vary. Use a site like Bankrate to compare products and speak with a local banker if you have questions. I’d also like to note that some of these home equity products have become harder to obtain over the past few years. However, they’re still out there! So if this is something you want to do, keep searching until you find a lender that is willing to work with you.
5. Identify a rental property. If you’ve decided to move forward with using your home equity to go from homeowner to investor, then it’s time to buy a rental property. There are a few ways to begin investing, but the most streamlined process is to buy full-service rental properties. Our team at Morris Invest can help you find a property that will help you reach your financial goals. We would love to learn more about you and help you achieve your goal of going from homeowner to investor. You can schedule a free call on our website at morrisinvest.com.

If you own your home, accessing your equity can be an incredible way to bridge the gap from homeowner to investor. I hope this video gave you the knowledge and tools you need to understand equity, how to access it, and why you should put it to work.

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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.

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