Unlock Your Home’s Equity Without Selling!
If you have equity in your home, now may be the time for you to buy investment property. Although home values have decrease precipitiously in the past few years, if you have owned your home for more than ten years, chances are you have solid appreciation right now. Since home values are the lowest they’ve been in recent years, you can use some of that appreciation you’ve built up and be fairly certain that the value of your home is not going to drop much more. Also, if you stick to borrowing only up to 50% of the total value of your home, you will still have a lot of wiggle room if values do drop a little more.
Did you know that you can actually gain wealth faster by investing your home’s equity even if you are only receiving the same return on your money as you are paying in interest on your mortgage due to tax write-offs on mortgages?
Lets assume an investment of 20% on a property (20% down payment), and that the property increases in value at an average rate of 4% annually, that translates into a 20% annual rate of return for the amount invested. With property value increases in the double digits as we have seen in recent years, it is not uncommon to see annual rate of return on investments above 50%.
As with any other investment strategies, there are risks associated with cashing out home equity. However, one can minimize some of the risks. By making certain that he can afford the new, increased mortgage payments without depending on the income from the investment, the homeowner would not be in a financial tight spot regardless how his investment performs in the short term.
Property values are such that if you purchase a rental property with 20% down, the potential cash flow is extremely attractive. For many years, cash flow was almost non existent with rental property unless the investor put about 40-50% down. Now, unless you can document your cash flow, don’t buy the property.
