"How to Manage Home Equity to  Build Wealth" 

"How to Manage Home Equity to  Build Wealth"

Be Very Cautious When in Borrowing Money From Your Home Equity!

Your home is more than just a place to live it's also an investment that can help you build wealth. Managing that wealth presents unique challenges, but can lead to financial opportunities that only come with homeownership. As you make your mortgage payments each month, you build equity in your home. The term “equity” refers to the difference between the value of your home and what you owe on it. For example, a homeowner whose home has a market value of $100,000 and whose mortgage balance is $70,000 has $30,000 of equity.

Remember that your home equity is wealth. If you take out a home equity or other second mortgage loan, you are spending your wealth. Experts agree that some reasons for home equity borrowing are more appropriate than others. Certainly one legitimate use would be covering the expense of major emergencies, like a big medical bill, if you have not established a savings account. You may also consider borrowing against your home equity if you plan on purchasing other properties.

Other appropriate uses include home improvements and education. But do not be tempted to spend your equity for any other purpose. Mortgage companies and lenders have a tendency to advertise and entice homeowners to refinance and take cash out for any unnecessary reasons. It may not a good idea to take cash out to buy a car, a boat or luxury vacation. It maybe a better idea to do some overtime or take a part-time job for a while to pay for the extra acquisition or luxury vacation. YOU HOME EQUITY IS GOLD!!!

You should also try to avoid relying on home equity loans to cover basic living expenses. Be wary of uninvited loan offers that you get through the mail, by phone, or on your doorstep. Those companies only care about the commission they can make by refinancing you. Keep in mind that when you refinance over and over, you go back to point zero when it comes to paying off your mortgage. (See 30-year amortization table).

Treating a Home as an Investment

Manage your home like the six-figure investment it is. It will be a key element in your lifetime financial plan. Owning a home is an investment that is designed to help you retire wealthier. If you own a home you should plan on owning more homes once you have at least 30% equity. You can take some cash out and use it as a down payment on future properties. Try to invest in multi-family properties and collect rents. The rents you collect will be use to pay off the mortgage of your new investment and you should as well as some positive cash flow. It is a good idea to choose a 15-year loan so the mortgage of your investment properties can be pay off in 15-year. At the end of the 15-year you will own the properties free and clear and rents you collect will be almost all your profits minus building maintenance, taxes and property management fees.

The golden rule of real estate is buy low, and create positive cash flow immediately. To do this you need to choose your investment carefully and negotiate with the seller. Choose a suburb with strong capital growth. Buy distressed properties. Never pay full market real estate value. You should be paying 20% less than what the property is worth.

You can then pass on your wealth to your kids who won't have to go through the same hurdles you had. This is one of the greatest gifts you can give to your children and they will be grateful.

Use your home equity to your own advantage. Many smart homeowners have invested in other real estate properties to create wealth. Lenders and mortgage companies are more interested in having you refinance so they can get commissions or collect more interests. This is certainly not in your best interest.

How Your Home Makes You Money

To Your Success,

It's All About You!