Strategy is key when it comes to establishing a successful real estate portfolio, and there are a lot of things that homeowners can do to get into real estate investing—even without access to huge sums of capital. In fact, homeowners can leverage their homes to invest in real estate. There are several different ways for homeowners to leverage their homes to get into investing. Here’s how you can leverage your home to start on the path towards investment success.
Table of Contents - How to Leverage Your Home to Invest
Before finding the best way to leverage your home to invest, it’s important to understand more about what leverage is and why it’s important. The purpose of leveraging is to maximize return on investment by freeing up assets and capital to purchase new investment properties or improve the value of existing real estate assets. Leverage can be used by tapping into equity or by using borrowed capital. No matter what method of leverage is used, however, it can have a lot of benefits for real estate investors.
Leveraging a home to invest in property is a strategic investment tactic. It requires plenty of planning and critical thinking, but the benefits can be well worth the effort in the long run. Using the equity in an existing home is one of the easiest ways for investors to maximize their buying power and free up capital to make improvements or add properties to their portfolio.
Leveraging in action
If you’re still confused about how leveraging works, consider the following example. The typical down payment for a home is 20 percent. For a house worth $250,000, that’s an initial cash investment of $50,000. The rest of the cost of the home is put up by the lender and then the buyer makes monthly payments on the mortgage until the principal is paid off. At the same time, the property typically appreciates in value every year. If the property appreciates in value by five percent annually, that’s an additional $12,500 in value-added to the home every year.
Even though the buyer has to make payments until the property is paid off, they are actually growing their wealth over time by owning an asset that appreciates in value with an interest rate that remains steady over time. If the investor taps into some of the equity that they build in the property, they can use that money to finance improvements or put a down payment on another property, which allows them to grow their wealth even more than they would by saving up and purchasing a property or financing improvements in cash.
Options for leveraging homes to invest
There are lots of different opportunities for homeowners to leverage their investment in their homes as a way to advance their real estate investment goals. Here are some of the most common options for leveraging home equity to invest in real estate:
Sell for equity
Depending on the market, the most beneficial option might be to sell and take advantage of available equity in the home. This is an especially beneficial option for homeowners who purchased when property values are low and are now in an inflated property market. To make sure that this is the right option, it's important to carefully consider whether the numbers make sense to sell for equity. If the market is not strong, it’s best to hold off and wait it out until values start to spike again.
Borrow against equity
Another common option for homeowners looking to leverage their home equity for real estate investing is to borrow against the equity. A home equity line of credit, or HELOC, functions essentially like a credit card, but it taps into a home’s equity. This allows homeowners to use their equity like a credit line to finance home improvements to increase their home’s value and maximize profits in the long run.
As an alternative to a HELOC loan, there’s the opportunity to fully refinance your home and access the equity that way. This is a great option if you’re interested in investing in a new home that’s difficult to get financed on its own. It’s also a good choice if you have a lot of expenses related to real estate improvements and you don’t mind extending the repayment timeline for your mortgage.
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Tips for using leverage
For the best results from a strategic leveraging approach to real estate investing, follow these simple tips:
Evaluate your options
The first thing that you should do if you’re thinking about using a leveraging strategy is to evaluate how much equity you have access to based on various financing options. Once you know how much equity you have access to, you will be better able to leverage your house and boost your investment portfolio through new acquisitions or property improvements.
Don’t assume anything
One of the biggest mistakes made by investors is assuming that market conditions will follow a specific pattern. While risk is inherent in the investment process, it’s important for investors to minimize their risks as much as possible by avoiding making any broad assumptions about what a market will or won’t do based only on previous trends.
Plan for every contingency
It’s great to have a plan based on things working out the way that you would like them to, but it’s crucial to have plans in place in case things don’t work out as planned. Make sure that you give yourself plenty of wiggle room to ensure that you are protected in case of unexpected expenses from property renovations or prolonged vacancies in investment properties.
Investors can benefit from leveraging strategies, but it’s important to carefully consider all the potential downsides before making a decision about how to approach this kind of investment strategy. After taking the time to fully consider all the benefits, disadvantages and considerations that come along with leveraging for investment, talk to a professional about financing options to access your home’s equity. With enough planning and a strategic approach, leveraging home value for investments can offer very high rates of return.
Ready to leverage to invest?
If you are ready to leverage and invest to grow your net worth, then it's imperative you get started with the right team. One wrong move could spell disaster when it comes to setting up your financing for investing.
We recommend you call LendCity Mortgages to help you set up a lending produce on your home.
They can be reached at 519-960-0370. They can help set up financing all over Ontario and Canada.
Benefits of Leverage
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