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How To Use A HELOC To Buy Real Estate


hey it’s Brandon and today I’m going to
show you one of my favorite creative strategies for investing in real estate
using a HELOC! How would you like to purchase real estate using no money out
of your bank account sounds like a late night TV scam doesn’t
it? Well my name is Brandon Turner host of the BiggerPockets podcast and author
of these books and today I’m going to show you how a HELOC can allow you to do just
that stay tuned so when I say the word HELOC
what comes to mind probably like a little creature from Lord of the Rings
or something compartment o space shuttle maybe but really key lock simply stands
for home equity line of credit and I’m gonna show you how this simple lending
tool can help you do more real estate deals this year and hey as I go through
this if you find it valuable just do me a favor and click that little thumbs up
button below the video it really helps us reach more people and of course
subscribe alright so let me explain how a key lock works then how to use one to
invest in real estate and the best way to explain what a key lock is it’s with
an example all right so let’s just say you own a house cute kitchen for you
you’re cute spouse and you’re cute kids and your ugly dog now let’s just say you
owe the bank 80 grand on that house but the houses got up and value job and
maybe you just paid off some the house too so it’s actually worth like 200
grand so the difference between what the property is worth and what you owe on it
is known as equity equity is really great because the more you have the more
wealth you have right but normally in order to access that equity you have to
sell the property pay a real estate agent pay closing costs all that so at
the end of it you might end up losing like 10% of whatever you sold it for
let’s do that for a second so to go to our $200,000 house example you sold it
you could lose like 20 grand in the transaction to those fees now that would
leave you with 180 grand but then you got to pay off the loan right the
mortgage that you had on it the initial mortgage which we said was 80 thousand a
hundred grand to invest if of course you don’t have any taxes to pay on that now
let’s look at an alternative way to access that equity a home equity line of
credit the home equity line of credit is a low and
usually a second mortgage added on top of whatever your existing mortgage is
and it kind of acts like this gigantic credit card you get access to this big
line of credit but you only pay when you’re using it and the interest rates
actually way lower than a credit card like sometimes under 5% though that rate
is usually variable they see could go up and down a little bit with interest
rates so if you get a HELOC you now have quick and easy access to capital when
you need it but not paying when you’re not using it right all right so how much
can you get well this gets kind of interesting because some banks will
allow you to take up today up to 90% of the property’s value and it includes
your first mortgage of course so if you have one so let’s walk through that math
I’ll keep it simple I promise remember earlier example we talked about a house
worth 200 grand which means the bank if they let us take 90 percent could give
us up to one hundred and eighty thousand dollars right for all the loans on the
property so again if our mortgage was eighty thousand and they’re gonna let us
take 180 total we take 180 minus the 80 and we have a hundred thousand dollars
that we can pull out in a home equity line of credit now to that hundred
thousand dollars number sound familiar it should it’s the same amount I
mentioned earlier when we talked about the money that we’d likely have after
selling the property so in other words potentially I can have the same amount
of leftover money as if I was selling the property but I don’t actually have
to sell it I can keep it and I can now use that hundred thousand to invest in
real estate now I’m sure you can find some use for a hundred grand to invest
in real estate right maybe you use it to buy lower price blue collar homes in
your area maybe use it as a down payment on a larger apartment building or maybe
you use it as a you know capital the capital needed to bur your next real
estate deal of course bird stands for buy rehab rent and Finance repeat it’s a
strategy where you find a fixer-upper rental property you buy it with
short-term funds like a HELOC you fix it up you then go to a bank and get a
normal fixed-rate first mortgage on the newly rehab property paying off the
HELOC giving you that short-term money back and then you can repeat the process
over and over hey by the way I’m for more on the bird strategy check out the
video here here wherever it is or just search YouTube for BIR BiggerPockets and
you’ll find it I hope you enjoyed this video if you did can you do me a favor
click that little thumbs up button subscribe to our channel for more real
estate and personal finance related video
and of course come hang out come hang out with us over on BiggerPockets and of
course to learn more about creative finance including helix home equity
installment loans house hacking partnerships lease options seller
financing and more consider picking up a copy of my first full-length book
launched a few years ago called the book on investing in real estate with no and
low money down which you can get at bigger pockets complex book store or
wherever books or soul or pirate it off the internet but don’t do that alright
for bigger pockets calm my name is Brandon Turner signing off

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