How to Turn Your Home Equity into Monthly Cash Flow

Summary

This 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

00:00

🏠 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.

05:00

💼 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.

10:01

📚 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.

15:01

📈 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.

Keywords

💡Home Equity

Home equity refers to the difference between the fair market value of a home and the remaining balance on the mortgage. In the video, it is the primary asset that the presenter suggests viewers can leverage to generate a steady stream of income. For example, if a home is valued at $700,000 and there is a $300,000 mortgage, the home equity is $400,000.

💡Monthly Cash Flow

Monthly cash flow is the income received on a regular basis, typically from investments or rental properties. The video's theme revolves around converting home equity into this form of income to provide financial stability and potentially replace the need for continuous work, as implied by the Warren Buffett quote mentioned.

💡Financial Strategy

A financial strategy in this context is a plan or method for managing and growing one's wealth. The video presents a strategy for unlocking the value of a home to create a passive income stream, which is a key strategy for those looking to leverage their home equity.

💡HELOC (Home Equity Line of Credit)

A HELOC is a type of loan where the borrower can borrow against the equity in their home, up to a certain credit limit. In the script, it is one of the four ways presented to tap into home equity, allowing the homeowner to access funds that can be used for investment purposes, such as purchasing commercial real estate.

💡Cash-Out Refinance

A cash-out refinance is a method where a homeowner refinances their mortgage for more than they owe and receives the difference in cash. The video describes this as a powerful way to leverage home equity into immediate funds that can be invested to generate income.

💡1031 Exchange

A 1031 exchange is a tax-deferred exchange for real estate held for productive use in a trade or business or for investment. It allows an investor to defer capital gains taxes when selling an investment property and reinvesting the proceeds into a similar property. The video highlights this as a favored method for growing wealth by deferring taxes while investing in commercial real estate.

💡Commercial Real Estate

Commercial real estate refers to property that is used solely for business purposes, such as apartment buildings, office spaces, or retail stores. The video emphasizes incorporating home equity into commercial real estate to create a monthly income stream, suggesting it as a smart investment strategy for long-term financial growth.

💡Tax Benefits

Tax benefits in the context of the video refer to the financial advantages that come with owning commercial real estate, such as deductions for mortgage interest, property taxes, and depreciation. These benefits can significantly lower one's tax liability and are a key incentive for investing in real estate.

💡Vacancy Factor

The vacancy factor is an estimate of the percentage of time that a rental property will be unoccupied. In the script, a 5% vacancy factor is used to adjust the expected annual income from a property, reflecting a realistic assessment of potential income.

💡Cash Flow Analysis

Cash flow analysis is the process of estimating the income and expenses of a real estate investment to determine its profitability. The video provides an example of how to perform this analysis, including calculating net operating income (NOI) and subtracting expenses such as mortgage payments and HELOC costs to arrive at the actual cash flow.

💡Loan Pay Down

Loan pay down refers to the reduction of an outstanding loan balance through regular payments. In the video, it is mentioned as a benefit of investing in commercial real estate, as making payments on the mortgage not only provides tax benefits but also increases the equity in the property over time.

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