Your mortgage, home ownership, debts, income, investments, property, children and future plans are not separate topics …
at CleveDoesMore we consider them to be crucially interconnected parts of your overall financial life.
You’ve probably always heard financial experts say that buying a home is a better financial move than just renting one. But do you really know how to make your investment in your home work to build wealth for you?
If you are going to build wealth for your family using a home, then you will first need to understand home equity. Equity is the difference between the value of a home and how much is owed on the mortgage. So, let’s say your home is worth $500,000 and your mortgage is $300,000. That gives you $200,000 in home equity.
There are more than 9 million homeowners in Canada and nearly 30% of them do not have a mortgage. Another 30% have worked hard to build substantial equity in their home, by paying down their mortgages while their home’s value rises. That means more than 5 million people could access the equity in their homes. Are you among them?
Michael purchased his first home back in 2007, just before the housing market took a turn for the worse. Because he only had a very small down payment and his home’s value didn’t quickly appreciate like he had hoped, his home equity was non-existent. Michael knew that he needed to do something to improve his financial situation and so he partnered with CleveDoesMore to learn how to create more equity in his home and then use that equity to build wealth for himself and his family.
Since that time, Michael has been able to completely alter his financial trajectory. Through strategic use of debt, making smart renovations to his home, and utilizing his home’s equity to grow his investment footprint, Michael and his family are now on a path for wealth building success.
Many homeowners are house rich but cash poor. Do you ignore the thousands that you have in home equity while struggling to pay 20% interest rates on a mountain of credit card debt? If so, you might consider tapping into your equity to pay off those high-interest credit cards and reduce your debt. Then, you can invest the money you were using every month to pay off credit cards.
The value of your home appreciates naturally or forcefully with renovation strategies. Let me share with you a story to illustrate how renovations build wealth. I worked with a client to develop a strategic plan for leveraging her home equity to provide monthly income and increase the value of her home. We spent $100,000 (including interest) to convert her naked basement into a rental unit. Renting the basement generates $30,000 per year perpetually. The value of her home rose $200,000. This forceful strategy appreciates the property value and creates positive cashflow at the same time.
Adding a second property to your portfolio can be a smart move. Say you put 20% down on a home where the upstairs and downstairs can be separately rented. The equity in your home is now working in a new property. Both your net worth and your income have increased. Moving the equity from one property to the other is relatively cost neutral. Depending on how much of a sweetheart deal you get, the cost to buy, refinance, and buy can be offset by the cash flow and equity building up over time.
Private lending is an increasing trend in real estate and lenders make a lot of money. While this area is heavily regulated, you can educate yourself and get legally set up to lend money and secure properties with mortgages. Let’s say you take out equity at 4% upon refinancing and you lend as a private mortgage at 15%, the spread is 11% net. Your equity will be working much harder than if it is sitting still under your roof.
Many business ideas are dead on arrival because there is no seed capital. Furthermore, a business loan is likely to carry higher interest than your mortgage rate will. If you have equity in your home and a viable business plan, you can consider self-funding your new business.
Equity-Take-Out is the term used when you increase your mortgage and reduce your equity position. The trick is to ensure that the money you take out will work harder than it would have if you had simply left it stagnant under your roof.
We strongly recommend you do your homework and have a strategy before pulling equity out of your home and losing it. We know that every dollar matters and what we imagine for you is to make that dollar work hard as opposed to you working hard for it.
At Cleve Does More, we love helping people put their money to work. We also love helping people locate money they didn’t even know they had with the revolutionary program we call the $500 Fix. This time tested solution comes with a full guarantee and is a great way to improve cash flow or give you additional funds for investments.
© Copyright 2018 Cleve DeSouza, Matrix Mortgage Global, Brokerage Lic# 11108