Cash-Free Real Estate Investment
Everyone has heard of the awesome profits people have made in the real estate market. Most of us assume that the only way to invest in real estate is to have cash on hand already to play with. This may seem like a frequent problem but like anything else, there are ways to get around a shortage of cash.
The way around this lack of cash is the biggest asset you have already invested in, your home. If you have already purchased your own home, you can leverage this asset and become a real estate investor before you ever dreamed you could.
Equity in Your Home
If you are a homeowner, have paid your mortgage on time, and have decent credit then you could start investing in real estate sooner than you think. You will have a decent amount of equity built up in your home even if you recently purchased it and have been making your monthly payments it is likely it has increased in value-creating more equity.
To come up with the amount of equity in your home you take the current balance of your mortgage loan and subtract it from the property's current market value. This number you come up with is the amount of equity you have built up in your home, as well as the amount you can get in a loan or line of credit.
Ways to Use Your Home's Equity
There are three main ways to use the equity in your home to get the cash or credit line you need to invest in real estate. You have the ability to refinance your property in order to receive a lowered interest rate as well as some cash on the side. You can use this money to buy an investment property or at least use it towards the down payment costs. Always inquire with your lender about any rules about cash-out refinancing. Many cash-out refinancing mortgages come with a higher interest rate than other mortgage loans.
Another option is to use your home equity as collateral to receive a home equity loan. This loan is a type of the second mortgage to the one you are already paying on and the amount given is based on the percentage of equity in your property. You can borrow up to one hundred percent of your property’s value, but if this is a second loan it is unlikely. This loan usually allows you to pay back the loan early without getting charged a hefty penalty fee.
You can also choose to use your equity to open a home equity line of credit which is similar in many ways to a credit card. The amount you are allowed to borrow is based on the amount of equity you have in your home. You have the ability to transfer money from your own home equity line of credit and write checks that debit money from the account.
With a real estate home equity line of credit, the interest rates that are offered are usually much lower than those you would pay on a cash-out refinance mortgage and include other tax advantages. You are also only paying interest and making payments on the amount of money you owe at that time rather than an entire amount of a loan.