So you’ve bought your primary residence a few years back, and now you want to invest in real estate but just can’t seem to muster up the funds for the down payment. I mean between a home, bills, maintenance and life.. who really has the capability to save up another mountain of cash without selling their home? Cue the home equity line of credit 
.
.So what exactly is a home equity line of credit (HELOC)?
Essentially, it is a type of loan that lets you borrow money using the value of your home as collateral. Here’s how it works, explained in simple terms. First, the bank or lender will look at how much your home is worth. They’ll also consider how much you still owe on your mortgage. Once they evaluate your home vs. Other properties recently sold in today’s market, they use the difference between what your home is worth and what you owe on your mortgage and call that your home equity. For example, if your home is worth $300,000 and you owe $200,000 on your mortgage, your equity is $100,000. Now that we have all that established, the bank then gives you a credit Limit based on a percentage of your home equity. For instance, they might allow you to borrow up to 80% of your homes equity. If your equity is $100,000, this means you could potentially have access to $80,000.
What is truly great about a HELOC is that it works something like a credit card does.. You get an open line of credit that you can borrow from as needed, and when you need it. You are not obligated to pay interest on the HELOC until you actually use funds that you took from it which makes it great to have available as a rainy day fund, or to eventually fulfill your dream of investing in real estate.
So now that we understand what a HELOC is, how does it help you invest in real estate? It’s easy! The longest part of the process is already done! Essentially if we use the example given above where you have access to $80,000 of equity from your primary residence, we now have a down payment amount which equals to 20% of $400,000.
Once you’ve tackled the process of re-evaluating your home and opening your home owners line of credit, the next step is finding a property that fits your budget and provides you with a break even or cash flow positive scenario of up to $400,000 to invest in!
Here is a step-by-step // Play by play for our first time investors:
1. Call your bank or lender and tell them you want to refinance // start a HELOC.
2. Get your home evaluated with your bank to establish its current market value.
3. Once you know your current value, subtract your mortgage balance to get your home’s equity.
4. Ask the bank how much of your equity they are willing to lend you (usually 80%) and take that as a HELOC.
5. Once your HELOC is set up, discuss how much your borrowing/buying capacity would be based on your HELOC (down payment amount) and salary etc.
6. Now that you have a budget and a down payment, you can call your local real estate expert extraordinaire and tell them you are ready to start investing in real estate!
Easy right? It’s never that complicated when you work with Groupe Baronello! So give us a call today and let us help you retire young!
