I have had people come up to me and tell me that their home is almost paid for, that they have no Mortgage on their home and they are feeling really good because they have no more debt. I tell them that is too bad.
So I take time to talk to them and ask how much their house is worth. They say $300,000-$400,000 and have no mortgage on it. I ask them how their lifestyle is, chances are they are ok but they are not OKAY.
If their house is worth $400,000.00 they could go out and they could get a line of credit and put on that house for up to roughly 80%. That is $320,000.00 so all of a sudden they have $320,000.00 that they can put to work for them and get a good return.
$320,000.00 I can place that money, usually I can make them anywhere from 10-15%.
So they could be making $32,000.00 to $50,000.00 a year they could be making off the equity in their home.
I know people are saying its risky, what if it goes bad. If you do sound Real Estate investing it’s very easy to get 10% return on your money.
When people tell me that they have their mortgage paid off and they have got equity in their home this is what I propose for them. So again you go out get a mortgage or line of credit which is a form of a mortgage which is just a term for a lean on your house in return for the money on that house.
The idea is you get the bank to finance your house up to 80%, you get the line of credit which you could advance yourself that cash to put in investments.
Usually those loans vary. I can get someone a line of credit for anywhere from 3% and less. So if you are financing at 3% and you are lending the money out that you are investing it at 13%, that is a 10% return you are making on your money.
So the idea is that you are borrowing the money from the bank, you are paying 3%, lending it out at 13%, you make an extra 10% per year on that money.
So how do you make money on your home?
You go out, you get a line of credit on your home, you find investments to place that money on and you yield the difference between those.
Where you would place that money varies. What I would recommend, certainly for this kind of investment is you place it on second mortgages on other people’s homes.
You have to do your due diligence and you have to make sure they are secure investments. The way you do that is you look at the investment, you look at the capabilities of the person you are lending the money to and you are very strict in those rules.
The thing is that the banks will only allow people to finance their properties up to a certain amount for obvious reasons, they don’t want to over extend it in case they ever have to take the property back.
I would also only let that money out for a short period of time, let’s say one year and then you go back in and you would evaluate that again and see what you want to do for another year. There are lots of companies that do this so there is no reason why you could not do this.
I do this for my investors all the time, placing money in private investments to other people, other investors actually. These other investors have a good track record so I am not too concerned about their ability to pay. I know these people, I know their situations and I monitor for my investors.
So that is what I wanted to talk about tonight. Basically, how you can use your own home to make money and to leverage it so you can get a high return on an investment.