By the time the typical American reaches their forties they have substantial equity in their home as a result of reducing the mortgage combined with the capital growth of the property.
By: James Delrojo
I'm sure you know the old proverb that you can't have your cake and eat it too. Well when it comes to investing in residential real estate that proverb doesn't apply. I'm going to show you that you can have your cake and eat it too.
Most people end up buying their own home at some point in their life. Generally they achieve this by saving a deposit and then borrowing the rest of the money required. As they pay their mortgage down they are progressively increasing the proportion of the property that they actually own. This percentage that they own is called their equity in the property.
A second way that equity in the home increases is through capital growth of the property. If you bought a home and initially had a loan of 80% of the value and in ten years time your home had doubled in value then that original loan would only be 40% of the current value even if you hadn't paid a cent of the principle. Your would have equity of 60% plus whatever you had paid off the loan.
By the time the typical American reaches their forties they have substantial equity in their home as a result of reducing the mortgage combined with the capital growth of the property. That same American is likely to have very little in investments or savings because they have been putting their money into paying the house and raising their family.
This average person is on the road to being broke in retirement and doesn't think that they are in a position to do much about it but they are actually living in the potential solution to this problem.
They are in a position to buy an investment property by borrowing against the equity they have in their own home in order to furnish the deposit for the investment property. If they choose their investment property by following some simple rules then between the rent and the tax benefits that they receive they have very little cash flow requirement to contribute. By the time retirement comes along they will have acquired considerable investment equity in the investment property.
They are still living in their home exactly as they were before yet they are using the equity in their home to increase their wealth. This is what I mean by having their cake (living in the home) and eating it too (using the equity in the home).
Residential property is at the low risk end of the investment market so as long as they learn the basics of how this form of investing works then they are in a position to make substantial profits for minimum risk and minimum cash input. It is a pity that most Americans are going to retire broke when they are in a position to prevent that unpleasant outcome and they don't even know it.
Some people who are aware of this concept think that they have to completely pay off their own home before they can take advantage of the equity but this is not the case. Most people are in a position to do this form of investing within the first ten years of buying their home regardless of the length of their mortgage. This is because the capital growth of your home usually provides enough equity within the first ten years.
If you have been in your home for ten years or more then it may be worth your while to learn how this type of investing works. Once you have learned the basic principles then you will be in a position to assess the profit and risk potentials and decide whether or not this opportunity is one that is suitable for you.
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