Andrew Lamb shows how to use your home's equity to buy investment properties without cash out of pocket. He walks through a HELOC strategy where rental income pays down the borrowed amount, and the BRRRR method that lets you refinance and recycle capital into more properties. Owner-occupied rates around 2.875% won't last.
Foreign. Hey everyone, thanks again for joining us. I am Andrew Lam, owner of the Andrew Lam Real Estate team and I wanted to talk a little bit about how to use your current home and the equity in your current home to buy real estate investment properties without using any cash out of your pocket necessarily. So I have had the question a lot with with interest rates being so low and demand being so high, home selling well above market value, or the market value rising dramatically from the beginning of this year to where we are currently, I've had a lot of people ask me if they should sell their current home when they are buying another property. The answer always is it depends on your current situation and if you can qualify for another home. But what I really am looking for is is there enough equity and do you have enough income, right? Do you have the ability to either rent that home out and keep it and then use the equity in that home to then go and put some down payment money on another property so that you can actually end up buying two properties and owning two rentals instead of selling one and buying another. So it just puts you in a better financial situation to build wealth over time and potentially retire early if you are getting enough passive income so that you don't have to go keep working. So that's something I always want to do, plant the seed for building wealth. And the way to do that is two ways. You can either get a home equity line of credit which would allow you to tap into that equity that you have. And the cool thing is home equity line of credit is not like an amortized mortgage. It is simple interest, meaning it's not compounded interest over time that you always have to pay back. It's simple interest charged to the balance in that current month. So the cool thing about that is as long as you have rent coming in, you can actually pay down. You can use the rental income from that home to pay down the home equity line. And it's essentially like getting a free house because the home that you've now purchased and you get a renter in there is being paid off by them. The renters, the tenants inside, and the tenants in your initial home are paying down the home equity line of credit. So it's a good way to leverage one property to buy another. And if you're doing something that we recommend, which is the BRRRR method, you're buying a property that's a fixer upper, you're putting some money into it to increase its value and then you're refinancing at the higher after repair value, you can actually do a cash out refi. Pull out all the money you invested for down payment and refinance or close to all of it. And it's like having it, it is having an investment property with, with no money into it. So your cash on cash return is potentially infinite. And it's a great way to build wealth. Use that same money that you pull out in cash out refi to go and buy another one and do it again and again and again until you potentially have 10, 15 properties and you use the same cash, you recycle it over and over and over to buy these other properties. And the way to start that, if you don't have any money in your pocket now, but you do own a home, is to leverage your current equity when which is a great thing to do right now with interest rates under 3%. If you're still living in the home, now's the time to do that because you can get that rate under 3%. I just locked one yesterday for 2.875. And that allows you to get the owner occupied rate versus waiting until after you buy another property. And now you have to get a non owner occupied rate, which is more like 3.375, 3.5 currently. But those are two great ways to leverage your current home to buy an investment property and then turn that into leverage for even more investment properties without using any cash. It's not like you had to save up a down payment of 20, 25%. If you've owned your home for enough time, you've paid down your loan balance a little bit, or the market's just increased dramatically like it has the last couple of years, you have some money to pull out. I think now's the time to do it. If you guys have any questions about buying or selling real estate or investing in residential real estate, feel free to reach out. I love having these conversations and I look forward to hearing from you.
