How to Turn Your Home Equity into Monthly Cash Flow
Summary
TLDRThis video offers a financial strategy to convert home equity into a monthly income stream, catering to homeowners with significant equity but limited cash flow. It outlines the concept of home equity, the importance of using it wisely, and four methods to access it, including HELOC, cash-out refinance, selling property, or a 1031 exchange. The presenter emphasizes the need for education, selecting a property type, analyzing deals, and making offers to secure a profitable investment. The benefits include monthly cash flow, tax advantages, and potential appreciation of the property.
Takeaways
- 🏠 Home equity is the difference between a home's market value and the remaining mortgage balance.
- 💡 Using home equity wisely can provide a steady stream of income, but it should be done with caution and proper guidance.
- 👴 Over-40s should be especially careful, as misusing home equity can have long-term financial consequences.
- 🏡 A paid-off home is not entirely free, as there are still ongoing costs like taxes, insurance, and maintenance.
- 💰 Home equity can be tapped into through methods like HELOC, cash-out refinance, selling the property, or a 1031 exchange for investment properties.
- 📈 Home equity can be used to invest in income-producing real estate, potentially offering tax benefits and appreciation over time.
- 📚 Education is crucial before investing; consider reading books, taking courses, or seeking mentorship to understand the process.
- 🎯 Focus on mastering one type of property investment before diversifying to others to increase the chances of success.
- 🔍 Analyze deals carefully, ensuring that the new investment's cash flow can cover the costs of the home equity loan or line of credit.
- 📋 Making offers is the key step to entering the commercial real estate market and cannot be bypassed for actual investment.
- 🌟 The benefits of using home equity for investment include monthly cash flow, tax benefits, loan pay down, and potential appreciation.
Q & A
What is the main financial strategy discussed in the video?
-The video discusses a financial strategy to unlock the value of home equity and turn it into a steady stream of monthly income by investing in commercial real estate.
Who is the target audience for this video?
-The target audience includes homeowners with significant equity in their homes, those struggling to pay bills despite owning a nearly paid-off home, and owners of single-family rentals who have equity but cannot see themselves retiring.
What is home equity?
-Home equity is the difference between your home's fair market value and the current mortgage balance. For example, if your home is worth $700,000 and you owe $300,000, your home equity is $400,000.
What are the four basic ways to tap into home equity mentioned in the video?
-The four basic ways to tap into home equity are: 1) Home Equity Line of Credit (HELOC), 2) Cash-out refinance, 3) Selling the property outright, and 4) A 1031 exchange, which applies to investment properties.
What is a Home Equity Line of Credit (HELOC), and how does it work?
-A HELOC allows homeowners to borrow against the equity in their home. The lender typically allows borrowing up to 75% of the equity. For example, if a home has $400,000 in equity, a HELOC could provide up to $300,000.
What should homeowners consider before using their home equity?
-Homeowners should use their equity responsibly and seek professional advice if they are inexperienced. If over 40, it is crucial to avoid making mistakes that could result in financial losses that are difficult to recover from.
What is the benefit of a 1031 exchange?
-A 1031 exchange allows investors to defer capital gains taxes by selling an investment property and reinvesting the proceeds into another investment property within a specific time frame. This strategy helps in growing wealth through real estate.
How can home equity be used to generate monthly cash flow?
-Home equity can be used as a down payment to purchase income-producing commercial real estate. For example, using $300,000 in equity as a down payment on a $1 million apartment building can generate monthly rental income.
Why is it important to ensure that a new investment property covers the cost of the HELOC?
-It is important because the investment property should generate enough cash flow to cover not only its own mortgage, insurance, taxes, and repairs but also the monthly HELOC cost, ensuring that the homeowner is not financially burdened.
What are the key benefits of using home equity to invest in commercial real estate?
-The key benefits include generating monthly cash flow, receiving tax benefits, benefiting from loan paydown as tenants pay the mortgage, and potentially forcing property appreciation by increasing rents over time.
Outlines
🏠 Unlocking Home Equity for Monthly Income
This paragraph introduces a financial strategy to convert home equity into a steady stream of monthly income. It targets homeowners with significant equity who are facing financial challenges or looking to bolster their retirement funds. The speaker emphasizes the importance of using home equity wisely and responsibly, citing Warren Buffett's advice on passive income. The paragraph also outlines two key points: the necessity of proper guidance when using home equity, especially for those over 40, and the misconception that a paid-off home equates to financial freedom, highlighting ongoing costs such as taxes and maintenance.
💼 Strategies for Tapping into Home Equity
The speaker outlines four primary methods for homeowners to access their home equity: a Home Equity Line of Credit (HELOC), a cash-out refinance, selling the property, and a 1031 exchange for investment properties. Each method is briefly explained with an example, illustrating how much equity can be accessed and how it might be used to invest in income-producing real estate. The paragraph also includes a cautionary note about the tax implications of accessing home equity and the importance of seeking advice or education before proceeding.
📚 Steps to Master Commercial Real Estate Investing
After discussing the ways to access home equity, the speaker provides a roadmap for investing in commercial real estate. The first step is to get educated and seek professional help to avoid common pitfalls. The second step is to select and master one type of property investment. The third step involves analyzing deals and ensuring that the new investment property can cover the costs of the home equity access method used, such as HELOC. The final step is to start making offers on properties, which is the only way to enter the commercial real estate market and potentially increase monthly income.
📈 Real-Life Example of Creating Cash Flow from Home Equity
The speaker concludes with a detailed example of using home equity to invest in a $1 million, 12-unit apartment building. The process involves using a HELOC to access $300,000 as a down payment, calculating potential rental income, adjusting for vacancy rates and expenses, and determining the net operating income (NOI). The example demonstrates how the investment can generate a positive cash flow and the benefits of owning commercial real estate, such as tax benefits, loan paydown, and potential appreciation. The goal is to eventually pay off the HELOC and repeat the investment process to continue growing wealth.
Mindmap
Keywords
💡Home Equity
💡Monthly Cash Flow
💡Financial Strategy
💡HELOC (Home Equity Line of Credit)
💡Cash-Out Refinance
💡1031 Exchange
💡Commercial Real Estate
💡Tax Benefits
💡Vacancy Factor
💡Cash Flow Analysis
💡Loan Pay Down
Highlights
Introduction to a financial strategy to unlock home equity for monthly income.
Target audience includes homeowners with equity, struggling with bills, or looking to retire.
Warren Buffett's quote emphasizes the importance of passive income.
Home equity defined as the difference between market value and mortgage balance.
Advice on using home equity wisely, especially for those over 40.
Misunderstanding clarified: A paid-off home still incurs costs.
Suggestion to convert home equity into cash flow to cover ongoing expenses.
Four methods to tap into home equity: HELOC, cash-out refinance, selling property, and 1031 exchange.
Explanation of HELOC process and its limitations to primary residences.
Cash-out refinance strategy to leverage home equity for financial freedom.
Advantages of selling property and reinvesting in income-producing real estate.
Details on 1031 exchange for deferring capital gains taxes on investment properties.
Importance of education and seeking help when investing in commercial real estate.
Advice on mastering one property type before diversifying.
Emphasis on analyzing deals and ensuring new property covers additional costs.
Making offers as the key step to entering the commercial real estate market.
Real-life example of using home equity to purchase a $1 million apartment building.
Calculation of potential cash flow from the purchased property.
Benefits of creating monthly cash flow and tax advantages.
Long-term strategy of equity creation and potential for cash-out refinance.
Encouragement to take action and the best time to invest in commercial real estate.
Transcripts
how to turn your home equity into
monthly cash flow in this video you're
going to learn a powerful Financial
strategy and that is how to unlock the
value of your home and turn it into a
steady stream of income so listen up if
this is you if you are Houser meaning
you have lots of equity in your home but
you're cash for this video is for you
how about this you have a nearly paid
off home because it's almost paid off
but you're struggling to pay your bills
this video is for you number three what
about this you own single family rentals
you own one or two and they have Equity
okay but you still can't see yourself
retiring watch this video and lastly you
have home equity no matter how much it
is but it's not working for you it's
just sitting there okay doing nothing
Well Warren Buffett says if you don't
find a way to make money while you're
sleep you will work until you die so in
this video I'm going to share with you
what home equity is how to untap it and
how to incorporate it into commercial
real estate to create monthly income
let's get started all right before I
jump into this I want to share with you
two words of wisdom on how to use your
home equity properly okay and as a
responsible Mentor I have to do this all
right number one just because you have
Equity doesn't mean you should use it I
know is contrary to this video but that
is so true because either you learn how
to use it properly or leave it alone
okay so if you are over the age of 40
and you have equity and you want to use
it to buy commercial real estate but
you're doing it by yourself or maybe
with an agent or with someone who has
very little experience don't do it
because you could blow it and not be
able to recover
okay so get help if you're not learning
how to use it properly or you can't get
help leave it alone okay all right
number two a paid off home okay that's
free and clear meaning no mortgage losss
of equity okay it's still costs money I
say this because some people think Peter
I have a paid off home I'm financially
free no you're not and the reason why is
you have costs still okay you have to
pay for taxes Insurance utilities
maintenance repairs so still cost you
money every month I have a novel idea
okay and that idea is why not take the
equity in your paid off home and turn it
into cash flow to pay for these bills
how about that that's what today's
videoos are all right okay let me
continue on now with turning your home
equity into monthly cash flow all right
I'd like to make just a real quick note
on just for the beginners out there what
is home equity okay I'll just spend a
quick minute on it here's a definition
of home equity it is the difference
between your home's fair market value
and the current mortgage balance okay
what you owe on your property here's a
quick and easy example right let's say
your home is valued um $700,000 okay is
worth that much but you owe on the
mortgage 300,000 so your home equity is
that difference your home equity is
400,000 okay it is that simple now two
uh notes Here uh when you use this home
equity it can be taken out of the home
it can be taken out of the home and be
taxfree it exactly can right and then
number two it can be you can take this
Equity here and use it to buy income
producing real estate that's what
today's video is about if you need
advice on how to do this we help our
students do this all time go ahead and
text Peter to 833 942 4516 and we'll see
if we can grab someone to help you out
in calculating uh you know if you have a
home or single family rental how to how
how to untap the equity here all right
in fact on the uh this next uh part here
I'm going to share with you how to get
your Equity out so we can use it let's
do that next next what I want to do is
share with you how to get the money out
out so if you have equity in your home
how do you tap into it and get it in
your pocket to be used to buy commercial
real estate or real estate in general
just to increase your monthly income
here's how you do it there are there are
four basic ways to do this the the home
equity line of credit also known as a
HELOC number two a cash shot refinance
number three to outright sell the
property and number four to do a 1030 1
exchange okay and 1031 exchange only
applies if it's a uh a a rental property
investment property okay you cannot
exchange your home uh and do a 103 wi
exchange into a rental property okay uh
this is only for investment property to
investment property okay going to make
that clear okay so let's talk about the
home equity alignment credit also known
as HELOC I'm going to use an example to
show you how this works so let's say you
want to do a helck and pull your money
out here's how it works again this same
example your home is worth 700,000 you
owe 300,000 and you have Equity of
400,000 so when you do a heel off the
lender will allow you to borrow they'll
give you additional loan for 75% of your
Equity so 75% of 400,000 is 300,000 so
at closing of this transaction here the
he lock you're going to get a second
loan on your property in the amount of
$300,000 to be used any way you want
okay so uh and and this only applies to
homes not a single family rental okay
all right so this applies to home and I
have a video here called unleashing your
helck how to take your hel loock in your
home and unleash it to buy commercial
real estate so check out that video all
right number two is the cash on
refinance we do this probably every
month on our students properties okay
very powerful way to leverage yourself
into Financial Freedom okay I use this
example here again your home is your
your home is worth 700,000 you have a
balance of 300,000 that's your current
loan Equity of 400,000 so when you do a
cash out refi you're going to get a new
loan so you're you're going to get a
brand new loan okay one loan and the
loan will consist of the 300,000
plus 75% with this 400,000 okay so at
closing you're going to have a new loan
in the amount of 6,000 but you have in
your pocket right uh cash of
$300,000 okay this is cash out you're
cashing out of your home equity okay by
refinancing your property cash out I
have a video called when to refinance
your commercial properties it's going to
give you strategies on what we do to
help our students
that we Mentor do this greatly you have
to check it out okay all right so that's
number two number three is to outright
sell your home so if you have a single
family home that you live in or you have
a single family rental you can sell it
right you can sell it and then buy your
your real estate to produce the monthly
income okay that's option three option
four probably my favorite and what I did
uh back in the day was to take take my
homes that I had my rentals and I sold
them and I bought commercial property
well the reason why I did that is so I
could defer and not pay capital gains
taxes so I took all of my $400,000 in
profits right and then I bought another
uh uh investment property right that was
uh larger if I did that okay within a
certain time period I can defer my
capital gains taxes this is probably
the most powerful way to to gain wealth
as a real estate investor okay and this
only applies to investment property okay
does not apply to your home okay I have
a video here of how this all works
called 1031 exchange stepbystep process
so uh check it out okay all right so
those are the four ways of getting of
tapping into your home equity or your
single family home equity getting it out
and using it it next what I want to do
is share with you once you have it in
your pocket what's next let's do that
okay now that you have the money what's
next I'm going to give you a road map on
exactly what to do next okay we do this
all day with our students step number
one is to get educated okay and get help
do not try to do this by yourself okay
if you're over 40 you cannot afford to
make a mistake get hell uh here's some
here's some choices here you can read a
book that we have we have a book uh the
link will appear you can read it on
Commercial estate investing get you
started you can take a course on that we
have on Commercial Real Estate you can
get mentored by us okay the link will
appear and you can also text Peter 2833
942
4516 and let's see how we can help you
get started okay on the educational part
all right um Step number two is to
select a property type to master okay to
master I I don't in in in over 25 years
of investing I don't know anyone who's
good at multif family and shopping
centers usually if they're big time and
they're doing really really well they
focused on one type okay the same
applies to you as a beginner once you
get experience you can try a second
property type but for now Master one
property type the choices are apartment
storage mobile home parks RB Parks Flex
space shopping centers all that is
available to you we have videos on all
of these you can watch these videos and
master it okay all right the third step
is to start analyzing deals okay once
you make your choice here start
analyzing and learning the fundamentals
it's like playing basketball you need to
learn how to dribble shoot and pass
before you can get in the game same
thing with commercial real estate learn
how to dribble shoot and pass first by
analyzing properties over a period of
time in fact uh our students uh that we
Mentor they go through four phases of
training okay uh of all sorts of
commercial estate basics of fundamentals
before they make offers okay the same
should apply to you and uh the other
thing this is really important a lot of
people don't talk about this but make
sure that your monthly heat out cost is
paid for by your new property here's
what I mean by that let's say you you
get a hel loock on your single family
home and it's costing you $600 a month
okay out of your pocket to use that
helck okay now what I want you to do
when you buy your income property make
sure that that property has enough cash
flow
to pay for that $600 a month okay so you
want your new property your investment
property to cover uh the mortgage
insurance taxes repairs and your he out
costs got it okay most don't talk about
that but that's really important now
that means you're going to have to find
a really good a good deal out there and
most deals that are listed on the market
won't work you're going to have to go
off Market okay and that's where we play
all right and then the fourth step the
final step is to start making offers
okay you are not in the game of
commercial real estate until you start
making offers in fact nothing happens
until offers are made okay nothing life
changing uh can be made until you make
offers uh increasing your your monthly
income to pay off to pay your bills
isn't going to happen until you start
making offers okay let me end it with
this here the best time to buy
commercial real estate
was five years ago the second best time
is today okay today so don't waste time
okay all right I want to end this video
with the next part here I want to give
you a real example of taking uh uh your
home equity and using it to buy
commercial real estate and walk that
process to you and how it looks numbers
wise let's do that
next okay in this last part here I'm
going to share with you you now that you
have your money right and you and you're
ready to go I'm going to give you a real
life example of how to use it and create
monthly cash flow all right follow me
here all right so just a quick uh
summary again I use an example a few
minutes ago you have a home worth
700,000 you have a loan on it for
300,000 so you have Equity of
$400,000 and then the your next step is
to get a
uh a home equity line and credit go to
the bank apply for it and and get a a
hea okay now remember the the lender
will only give only lend you or give you
75% of this 400,000 so 75% of this
400,000 is
$300,000 so at the end of this
transaction you will have a checkbook
right where you can write checks against
this
$300,000 in this case we're going to use
this entire
$300,000 as a down payment payment okay
as a down payment to purchase a $1
million apartment building that's 12
units okay you can find these today okay
12 units million dollars so you're going
to put down the 300,000 into into the
million as a down payment so your loan
will be 700,000 but we'll get into that
a little SEC a little minute okay now
your rents are $1,100 a month okay times
12 units that's 13,200 a month and then
you take take this monthly figure of
13,200 and you multiply it by 12 months
okay and that gives you
158,00 that's per year okay now you are
not going to be occupied for the entire
12 months it's not going to happen so we
have to uh subtract a 5 5% vacancy
Factor so 5% of the income right and so
your new your 58 158 drops to
158,000 for 80 okay just trying to be
realistic as possible next you need need
to subtract your expenses they're going
to be taxes Insurance repairs utilities
all that okay that's going to be about
$4,000 per door per unit which is which
is $48,000 so I'm going subtract the
48,000 from my income here that gives me
an noi of 102480k
I'm going to subtract my mortgage and
I'm going to subtract my heal out cost
to calculate my cash flow per month okay
or per year all right so my noi minus my
mortgage remember I bought it for a
million I'm putting down 300,000 so I
owe 700,000 and I'm going to pay 7%
interest on it that's about you know per
month times 12 that's about
55,8 A4 per year and then I'm sub I'm
also going to subtract my my HELOC cost
okay now when I when I wrote the check
for 300,000 to use my HELOC it's going
to cost me in interest about $2,000 per
month okay so hel loocks up cheapap okay
but again I want your property to be
able to afford the cost of be helck okay
that's just responsible in my in my
opinion okay so I have my noi minus my
mortgage from the bank minus my hilock
my cash flow is $
22596 per year okay or
$1,883 a month not too bad right
considering you have a deal where you're
paying the mortgage insurance taxes plus
the helck and this is how much left over
per month not too bad in fact it comes
out to be over 7% return and all that so
it's a pretty good deal here okay now um
I just want to give you the benefits of
doing this here are the benefits of
doing this you are so every month you're
going to get cash flow okay every month
now if you did nothing with your with
your Equity you would not be getting
cash flow okay just be sitting there
this is what happens when you make
offers when you take action you're going
to create this cash flow per month that
you didn't have before you're also going
to get tax benefits of owning commercial
real estates with which is huge okay and
then you're also going to get uh the
benefit of loan pay down so every month
that you make your your payment here
your your payment on your mortgage your
your uh loan balance drops and you're
creating Equity so remember the quote
about Warren Buffett that you need to
know how learn how to make money while
you sleep right or you're going to work
until you die this is a great example of
your tenants paying your mortgage for
you and your tenants in creating more
equity for you okay and then lastly if
you have the opportunity to increase the
rents every year little by little you
are you are what you're doing you're
doing you're forcing the appreciation
which can only be done in a commercial
okay so you're forcing the value upor
now if you can do this long enough over
a few years you're going to create
enough equity to do a cash out refi just
on this property right your goal is to
pull out this uh
$300,000 and pay back your HELOC right
and then repeat the process over again
got it beautiful right simple complex
but beautiful can be done we teach our
students how to do this all the time got
it all right okay I hope you enjoyed
learning that now you know how to take
your home equity and create cash law all
right thank you so much for watching if
you hung out this long you are my
favorite viewers and I appreciate you so
much if you like this video go ahead and
click the like button if you want to get
mentored like our student like we teach
our students doing here uh go ahead and
click on the link and apply or if you
just want to read a book go ahead
there's a link will appear go ahead and
download the book get at it and have fun
all right thank you everyone so much
today and I'll see you at the next video
تصفح المزيد من مقاطع الفيديو ذات الصلة
澳洲買樓 | 小心中伏!Refinance加按陷阱
Crypto World: How Tokenization Could Shake Up The $52 Trillion U.S. Real Estate Market
Commercial Real Estate For Beginners | Step By Step Tutorial
How to REMORTGAGE to buy a SECOND PROPERTY | Property Investment UK
If I Started Investing in 2024, This is What I'd Do
Creative Hacks to Start Building Your Real Estate Empire Today
5.0 / 5 (0 votes)