Real Estate is currently at the top of its game. It is a seller’s market where buyers are bidding the prices up against one another. There is a housing shortage across the board, and some say it may take a couple of years to catch up on inventory.
What is a buyer to do? Well, we need to be creative. This article is part three in our series (101, 102) on using creative financing to get ourselves into more real estate. First, let’s answer the question that is on everybody’s mind.
Is it that important to get ourselves into real estate? My short answer is yes! Is it imperative that we get ourselves into real estate and as soon as possible. In my opinion, real estate is still the number one wealth generator out there.
Should You Consolidate Debt?
For today’s article, I want to focus on those who own a home and have some equity built up in their primary residence. I discussed some ways to withdraw some equity from your house in “TAP Your Home Equity,” Now, I want to discuss some investments that your home equity can purchase.
In “TAP Your Home Equity,” I was very adamant about only using your home equity to purchase an investment vehicle that will make you money—an asset. So let’s look at some different ideas of investments in real estate that can make us rich.
Finished basement or attic. If you have an attic or basement, it is time to start making money from them. Sometimes finishing these spaces can be costly, so tapping into home equity can be a path to fund these capital expenditures. Three things that will increase revenue will be adding a kitchen feature, bathroom, and an external entryway.
Finished room of garage (FROG). I had never heard of a frog before I started reading books. However, it is a solid way to make revenue. Depending on the space that you have on your property, you may build a detached FROG, creating a significant income stream for you. People love living in separate spaces.
In-Law Suite. Having a detached in-law suite may be the most lucrative addition you can add to your home. It is basically like adding a full-blown apartment to your home. If you have space and the home equity, I would move this to the top of my asset list.
Become a Real Estate Agent/Investor
Mobile homes. If you have the land, adding a mobile home to your property is similar to adding an in-law suite. You could even add multiple mobile homes. The difference is the zoning requirements. You would have to check into what is allowed in your county or township.
Tiny homes. Counties and townships do not like tiny houses at the moment. You have to do your research before you get into the tiny home game. However, if it is a viable option, it could be very lucrative. I am very bullish on tiny homes because they are affordable. How they hold up, in the long run, is anybody’s guess, though.
Condo. Buying a small condo in your city may be an option depending on your home equity. I do not like condos because of the homeowners’ association fees and the lack of customizability. But, it may be a viable option in bigger cities. Look hard before buying into a condo.
Single-family residence. Depending on your city, you may be able to use your home equity as a down payment into another single-family home. Run the numbers. Chances are the mortgage on your primary residence will increase, plus you would have another house note. I would ensure that I had another revenue stream in my primary residence (like renting a room or others I mentioned above) before I tried to buy another single family. You do not want to over-leverage yourself.
Millennials, Homeownership, and Kids
SIngle-family in a small city. In the article “Should You Buy a Home in a Small City,” I explored the possibilities of buying in a small town. You could use your home equity to buy a home entirely in a small city. It may be a pain early on, but you would reap the benefits of this decision in the years to come. And during retirement, you could move to a small city home and use the rental income from your primary as a large revenue stream. Planning a future like this can lead to significant wealth.
These are some of the more straightforward ideas to use your home equity. These all relate to real estate but do not forget that you can use them for business. You could use it to start a private money business or a hard money business. You could start a farm or dog park.
The world is truly your oyster, but remember to run the numbers. Do not just assume that your FROG will command a massive sum of rental income; this could get you into trouble. Real estate is a game of math and adding value to your properties.
When my wife and I started renting rooms, we didn’t know what we were doing. Over time we learned how to add value by upgrading refrigerators, connecting HBO and Cable, and creating a family environment.
Maximum Leverage 2: Buy Homes with Nothing Out-of-Pocket
You may laugh, but a vast number of older folks who bever had children or got married. They are looking for a home-like environment, and they are willing to pay good money to be surrounded by people who care. Let’s look at an example of how powerful this concept is in real life.
In our part of Florida, we own a single-family residence that we pay a $1,100/month mortgage. It can command roughly $1,600/month rent, leaving us with a cash flow of $500. The house is in an infinite return because we have none of our own money in the home, and it acts as a fantastic wealth generator by any stretch of the word.
Also, in our part of Florida, we own our primary residence. It has two master suites, and we rent each of them out to older citizens. They both have been with us since we moved into the property, so roughly a year. They each pay $800/month for their rooms. That is $1,600/month cash flow, free and clear. If we decide to invest that $1,600/month into our dividend portfolio, stating with our current $150,000, the sum would be $3.7 million in 30 years, just from renting these two rooms. Sharing our home has made us financially free, and we no longer need to rent rooms, yet we still do.
As you look into potentially tapping into home equity, run the numbers. Don’t be too overly optimistic. Do the number work if your rents were lower? Is the cost of construction too expensive right now? Is buying a mobile home or a tiny home an option?
Do not just jump into something that doesn’t make sense. I am a big fan of reading, and I recommend you read some books like “Zero Down” and “Build a Rental Property Empire” before moving forward.
Remember that the velocity of money wants us to get our money moving into new investment vehicles. Having our home equity sitting around does nothing for us; however, we need to become savvy investors first. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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