How The Rich Use Their Home Equity To Explode Their Wealth

So how to turn your home equity into monthly cash flow? Today we are breaking down exactly how to pull out equity, pull out cash from your existing assets, from your home, tax-free, by the way. And at the end of this video, I'm going to talk about exactly how I would invest that money and how you can to be able to replace your income within the next 6 to 9, maybe 12 months max. Okay, that may sound wild, but let's jump in. I'll show you exactly what I'm talking about. Okay, first off, who is this for? Number one, if you have equity in your home, which simply means if you have a home that's valued at $500,000, you owe $200,000, your equity is $300,000. All right, $700,000 home value in today's market, you owe on the loan balance, you owe $300,000, your equity is $400,000. Okay, so that's— that $400,000 is your equity that you own. Okay, now, If you have that, you have equity, but you don't know how to use it, this video is for you. Okay? Or maybe you are asset rich and cash poor, right? Maybe you have a lot of assets, but the cash flow or the liquidity is not very high. Okay? Or you have rentals, you have single-family rentals or whatever kind of rentals, but you just don't have enough cash flow to see yourself retiring. Okay? Or being able to replace your income or see any kind of substantial amount of income come from it anytime soon. That's what we're going to be talking about today. Warren Buffett said, if you don't find a way to make money while you sleep, you're going to work until you die. Okay, so caveat to this whole thing. First off, just because you can doesn't mean you should. Just because you have equity doesn't mean you should invest or take out that equity. All right, that may be contrary to our video today, but I just want to warn you, if you don't have a plan, you don't have any help, you've never invested money before or whatever, you don't want to just go try it out here and expect it to go well. You could absolutely lose that money and then owe more than you're making. Okay. Number 2, paid off does not equal financial freedom. Just because your home is paid off, you still have bills, right? You still, you don't fully own that property. Maybe contrary to what people think, but you still owe property taxes. You still owe insurance. You got utilities, you got maintenance, you got all these things. And guess what? If you don't pay your property taxes, the government's taking your house. All right. So just because it's paid off does not mean you're financially free. Contrary to what Dave Ramsey says, right? Home equity. Let's talk about what it actually means. So first off, like I already said, your value of your home, just say it's $500,000. Your loan balance you've paid down, you only owe $200,000 on the house. That means your equity is $300,000. Again, if it's $1,000,000, $500,000 loan, $500,000 in equity that you own. And by the way, you can take this out tax-free. All right. We're going to talk about that. And you can invest it in income-producing assets. Okay, so to actually put the money that is already yours to work for you. Again, I'll just say it one more time up here. You can put the money to work for you, but if you don't know what you're doing, it's better that it just sits there. Now, if you want to learn how we actually invest this money and how we actually get into bigger deals, because one of the big things in my mind, and I'll talk about this later, is you not only have that $300,000, but if you learn certain skill sets to be able to invite other people who are in this in the same situation who has equity, you can partner with them and you can get into bigger deals and get way more cash flow. So if you want to learn how to buy apartments or how to get into bigger deals and leverage your money, your time, everything much better, reach out to us. I'll drop a link in the description below. All right, let's get into the next part, which is the 4 ways that you can take out equity from your home. Number 1, HELOC, home equity line of credit. Number 2 is cash-out refinance. Number 3 is sell, and number 4 is 1031 exchange, which by the way, that is not tax-free. We'll talk about that in a second. HELOC. So understand about HELOC. It's a home equity line of credit. This applies to your personal home. What it is, is you are going to go to the bank. They're going to give you a HELOC on your home and they're gonna say, okay, how much equity do you have? $300,000. They're gonna say, I can give you 75% of that equity, which would be about $225,000. I'll give that to you. And what they're going to do is put it on a second loan on your home. All right. So typically interest rates are a little bit higher here. But number 2 is cash-out refinance. This cash-out refinance is going to be a single loan. So instead of the HELOC being a second loan, it's going to consolidate and be one loan. You're going to refinance the whole property. They're going to give you 75%, 80% of the home's value and they're going to give you that amount of equity after your loan payment. Right. And they're going to put a new loan on there. They're gonna give you new interest rates. So you just need to make sure that when you do this, that whatever you're investing in, if you're investing as an LP or limited partner, you're passively investing, you just need to make sure that your return, your preferred return, whatever that is, is going to be more than your interest rate and what you're actually paying. All right, so we have limited partners, investors that use this strategy, but also, and more importantly, mostly our clients, our students are actually deploying this strategy a lot. Okay, so this is something that you can roll into bigger deals. We do this all the time. Many investors have made millions with this strategy. That's cash-out refi. We'll talk about that in just a little bit. Number 3 is sell. Now look, the only time we recommend doing something like this is if you have enough losses to cover the capital gains tax. Okay. Or if you just truly, your time is worth more than you keeping this asset and paying the capital gains. 'cause we all don't wanna pay Uncle Sam capital gains tax. Those are massive. And leads me to number 4, which is a huge one for most investors, is 1031 exchange. Okay, so here, this is how you avoid capital gains tax. You sell the property, but then what happens is you have a timeline. So you hire a qualified intermediary, right? You gotta find a 1031 exchange qualified intermediary. To actually hold the cash. Once you sell, it goes into a bank account, it goes into with a qualified intermediary, and you have, I think it's around 180 days to actually buy another property with that money so that you don't get taxed on it. Okay. So you have a timeline to buy the new property. You need a qualified intermediary. Now, the downside of this, first, I'll caveat, it has to be like-kind. So if you don't know what that means, like-kind is just meaning that it has to be a similar type of asset as the one you sold. So whatever you're purchasing has to be similar to the one money sold. It can be residential to residential. Many times we do a single-family or duplex, smaller residential to bigger deals. All right, that's a massive way to break into bigger deals, but you just have to make sure it's like-kind. It can't be like selling a business into multifamily or into residential, right? Now, here's the deal. This is where most investors get tripped up with 1031 exchanges, okay? There's a lot of people doing it. But what happens is they get a 1031, they get in this timeline, and what happens? They don't know how to find really good deals. They don't know how to find off-market deals. They look on LoopNet, which is where deals go to die, in my opinion. We have a saying that says, the bigger the brochure, the worse the deal. Right? This means that brokers are marketing it to the public. And guess what? Most of what a broker does is actually transacted. Most of the deals a broker does is transacted off market. It's called pocket listings, right? They've reached out to their current investors. They've reached out to their email list, all the people they know, and they've all said what? No. So what do they do? They go on to LoopNet and post it publicly to get a higher price and hopefully find some sucker or a 1031 exchange person that has a ton of money. They got to get rid of it fast, right? And so then they end up buying a deal that's barely cash flowing, 5%, you know, it's a bad deal, right? Or it's mediocre at best. And so you need to remember, try to identify the property before you get it, before you sell your other property, before you do this 1031 exchange, at least identify how you're going to find a really good deal and, you know, have a pipeline of deals coming in. So if that's something you struggle with is finding really good deals, that's something I'd love to help you out with. This is what we do every day. As we help hire VAs, we help hire whole calling centers for clients. We have all kinds of strategies that will be able to uncover direct-to-seller deals and get you in front of and build a relationship with some of the highest brokers in the market that will actually send these deals to you before they hit LoopNet, CREXi, all these public platforms. So if that's something you want help with, you want to get in the room with people that are doing this at a high level, buying really big deals, using capital partners to fund the deal, let us know. I'll put a link in the description. Now, how do you turn that equity you just pulled out into monthly cash flow? And again, in this equation, I'm gonna show you exactly how to take it and be able to replace your income or even double your income in the next 6, 9, max 12 months. All right. So let's walk through it. First off, just say the equation again is the property that you own, the value of it is $500,000. Your loan balance, what you owe on the property is $200,000. The equity difference is $300,000. $500,000 minus $200,000 gives you $300,000. Okay, so option number one, you have $300,000 in equity. Option number one is you can do $300,000 cash-out refinance, which they're going to give you 75 to 80%, just say $225,000 you are taking out in cash. So what you can do with that, just say you go buy a 15-unit multifamily apartment complex, purchase price is $1,000,000, which by the way, that may sound wild to some of you.. But we've found deals. Again, you go off market, these are the types of deals you can find. But, you know, $800,000, we just purchased a 16-unit for $800,000 and it was actually 95% seller finance. So all we had to do was come up with $40,000. But that's for another video. Just take this example, $1 million. The down payment is your $225,000. So this is just option 1. I'm going to show you an even better one in just a second. But say you take that down payment, $225,000 down payment on a million-dollar property. Your rents are $1,200 times 15 units and then times 12 months gives you a gross revenue of $216,000 in gross total revenue minus your expenses. Just for conservative sake, $108,000. So just say it's half expense ratio, 50% expense ratio minus your debt. We're just going to call it $86,000 a year that we're paying as far as debt coverage. And the way I got that was because our NOI, this is our net operating income. You know, once you subtract your expenses from the gross, you have your NOI, net operating income. That is the profit before debt, before CapEx. That is what the monthly or the yearly NOI is. And the debt can't be more than 1.25x the NOI. So the NOI has to be 1.25x the debt service. It's called debt service coverage ratio. So your bank is looking for your NOI to be 1.25x. What they can give you as far as debt. So just say your debt's $86,000. That gives you $22,000 per year in cash flow. That's one way to do it. Now I'm gonna show you an even better way because you may be thinking, ah man, you know, if I'm gonna go through all this trouble, I kind of want a little bit better than that. Right now, I will say this, there's a lot of advantages to this as a whole, just because you're gonna be able to increase the value of the property. The equity increase is going to be much greater than what you're doing in your home because you can do what you call forced appreciation, right? We're not dependent on the market appreciation. And these multifamily deals are appreciation multipliers, right? Because every dollar you add to this NOI, it's not the value of the property is not based on comps or comparables in the area like your single-family home is, right? And it's only moving with the market, right? This is based on if you can improve that, if we can go from a 50% expense ratio down to a 30% expense ratio, We just made the property worth a lot more, right? You're probably going to be able to sell it in a few years for $1.5, $1.8. So depending on where this is at, what kind of appreciation you have. But let's get into option number 2, which is the best option, I believe, and what we recommend every time. Okay, let's do it. All right. Option 2, the best part of the video, guys. Option number 2 is you go bigger deals and raise capital. All right. Increase your viability, your ability to buy properties. Okay, equity, we have $225,000 we brought out of the property. Okay. And then we add in a raise of $775,000 from limited partners, capital partners. Okay. If you figure out how to find a good deal, now we can invest $1 million in the down payment. I'll give you an example. We bought an 88-unit apartment complex, purchase price $4 million. So the down payment $1 million, which is where you come in right here. The acquisition fee by itself was 2%. You can even get up to 5%. I've seen some syndicators do 5%. We average around 2 or 3%. So we brought out $80,000 just in cash at the closing table. This is where it gets good right now. Again, we brought— we bought this 88-unit in 2023, which actually adds to how good the market is right now because that was the worst time to be buying.. And now we have it under contract to sell 3 years later for $7 million. Right now we're selling this property for $7 million. That means the equity created was $3 million. All right. So cash flow to you, right? If you look at the cash flow, not the acquisition fee, not the equity that we're about to talk about, which is the main reason people get into apartments, but the cash flow to you is $22,000 per year at a 10% pref as an LP, right? Just not the general partner, which are the operators, the one that found the deal, the one that's stewarding the deal. And again, you would want to hire property management to make sure you stay in a place where it's taking minimal time. Just you as an LP investing that $225,000 at a 10% preferred return per year, you're at $22,000 per year. So then you add that with the acquisition fee of $80,000. Now you have $102,000 year one, and then the equity to you. So that $3 million, we're going to pay our investors off. We're going to give them their share depending on how you structured it. This was more of a 70/30 split in favor of the GP. Again, when you have— you understand how to raise capital, you understand the economics of the deal, you learn how to find really good deals. You can, you can split it up in that kind of way. They bring most of the capital. The person who found the deal is the most valuable person and they're going to execute on the value-add plan. We typically take to say anywhere from 60/40 in favor of the LPs to 70/30 in favor of the GPs, us, right? So in this situation, we did 70/30. And so the equity to us was around $2 million in 18 to 36 months. All right. $2 million. This is why people get into apartments. And it's also why right now is the best time to be buying multifamily apartments. In fact, we just bought or we just got under contract. We're past due diligence. We're about to close on a deal. For $7.2 million. It was a 90-unit apartment complex and the seller was all in at $13.8 million he had in that property and we're buying it for $7.2. So right now in the market is the best time to be finding opportunities. I believe it was Blackstone just launched an $8 billion fund for distressed commercial real estate, right? They just launched this massive fund and they're buying it from the banks. Because people, whenever the interest rates spiked, they weren't planning on that. And now they can't refinance, they can't get out of the deal. And so it's making them sell at a loss. And so this is the perfect time to be buying deals like this. And this is exactly what's going on. So this is option number 2. If you want to learn how to get into bigger deals, you want to learn how to raise capital, you want to learn how to find off-market deals, attract off-market deals, and you want to do that by building a brand, you want to really be out there learning how to turn your equity into monthly cash flow, replace your income in the next 6 to 9 months, let us know. I'll drop a link in the description. Would love to talk with you. We are a faith-based group, as much about impact as we do income. And if that resonates with you, would love to talk with you soon. Hope this video was helpful. If it was, like, subscribe, put on all notifications under subscribe, and we're gonna be coming out with a lot of videos just like this. So looking forward to seeing you soon. God bless.