Building Massive Wealth through Real Estate

Do you know the number one secret to building massive wealth through real estate that no one talks about? Not only that it's achieved with minimal effort if you do it correctly.

We are talking about equity in your properties, and we are going to dive deep in the subject today. Trying to get rich quickly is usually low percentage odds, and most of the time it's very risky. We would go so far as to say that in the majority of cases, you end up wasting your money, energy, and most importantly, your time with the get rich quick schemes that are out there today.

Instead, I'm gonna show you today how to get very wealthy slowly and consistently, but with almost 100% certainty if you do it correctly. So, if you want a very high likelihood of getting wealthy over a long period of time, then managing your investments equity is absolutely one of the surest ways to get there. Let's jump into equity.

Hi everyone, Nick DeAngelo here with Saint Investment Group. For those who don't know me, we currently have over 150 million and we are raising an additional 100 million currently.

Let's jump to the beginning of the discussion with equity, with a definition. Simply put, in the real estate investment world, equity is the difference between how much the market value of your property versus how much you owe on that property, whether it is loans, etc.

So, to calculate your home's equity, you would take how much the property's worth minus the mortgage or mortgage is that you have against your home. So, if your property's worth, let's say, $500,000 and you have say, $400,000 in loans, then your equity, the spread between the two is $100,000 that you have sitting there in value in your property.

With that simple definition, we understand that equity's the spread between the two. The question is How do we take that small piece and make it much, much bigger and maximize value of your equity? and how do you build equity?

The good news is that there's only two ways to build equity in your property, so it's easier to understand if you think about it that way.

One is you raise the value of that property.
Two is you reduce the debt on that property.

In the first example, if the property value goes up, whether that's market conditions and the property raises in value just from the market going up or something that you did to increase the value of that property, the spread gets bigger between how much debt is there and how much the property's value. So your equity goes up in the second example where your debt goes down on the property. You can do that by paying down your loan, getting a refinance for lower payments, and then accelerating your payments, etc.

We'll jump into some really good examples, but the goal so that you can visualize it is to make that gap between property values and everything owed as big as possible, which maximizes your equity.

So let's start with the discussion of the debt that you have on a property. How do we use strategies to minimize the debt that's on a property, or more importantly, how to minimize the interest that we are going to pay on that debt so that we come out of pocket less as an investor?

Well, the first example is probably the easiest and simplest, and that's just continue to pay your mortgage. Each month you make your mortgage slowly chip away at the principal balance you owe the bank on your property. So just by setting up your mortgage on auto pay and paying it consistently every month, you are building equity with every single payment.

Now, for the A-plus students that really want to dive deep into this, Google something called an amortization schedule, and then plug in the details of your loan and your home. What this amortization schedule will do will give you the borrower an understanding for each payment that you make to the bank, how much of your money goes to interest, and how much goes to principal reduction.

Knowing these numbers gives you a good idea of how much you are actually reducing your loan per payment and how much the bank is just making straight money off of the interest of your loan.

Big spoiler alert, it's going to depress you when you understand how much you're paying an interest, that is not even reducing your loan balance. Well, the good news is you as the property owner have more tools to reduce that loan.

Paying more than the minimum on your mortgage. If you want to build equity more quickly, you can always pay extra every month and pay above what is due, and that extra amount will go towards your principal reduction.

Even paying as little extra as $100 a month chips away at the principal balance and the value accelerates as the loan gets further along because you're chipping away at the principal early, which reduces the interest on the back end significantly.

Another option for you, depending on what your payday and bonus schedule look like with your job are to make an extra payment at the end of the year. This extra payment at the end of the year does the same thing as overpaying a little bit every month, but it just does it in a bulk sum, and if you get it.

Let's say, a big bonus at the end of the year, it might be smart to put that in your mortgage and build that equity. Now that we touched base on a few strategies to reduce your loan balance more quickly, let's jump into a few ways to increase your property value, thus forcing that equity into your property.

The first way to improve the value of your property is twofold.

One option is to renovate it and redo the entire property if the property is possibly below the standards of your local market.
The second way is to do the same thing, but add square footage and do a remodel that actually expands the square footage of that property completely. Things like adding another bathroom or especially adding another bedroom, can significantly increase the value of the property, not just because the square footage is bigger.

So then therefore, that price per square feet plus the new square feet should give you roughly the increase in value you're creating, but also because it makes it more desirable for people that need that extra bedroom or extra bathroom.

The most important thing when you're considering adding square footage to the property is to run the numbers on this. Please spend some time, do your research and make sure that this is the smart move.

Let's jump in quickly on how to run those numbers. The first thing you're gonna want to do is run market comps in your area. You wanna find houses, you wanna find properties that are similar with similar square footage, with similar layouts, yard sizes, etc.

When you have similar properties with similar features, similar layouts, square footage, etc.

What you're gonna do from there is find the price per foot that they are charging. When you know the price per foot, then you know how much value you would get from each square footage that you then add to your property. Hmm, but actually adding that square footage is not free.

Next, you need to understand how much that's gonna cost to add those square feet. From here, I recommend calling around to some local contractors and getting loose rough bids on what it would cost to add the square footage and how much total that you could add to your property from there.

If the cost of adding the square footage is much less than the value you would get from adding that square footage, that you might have a really good opportunity to add square footage to your property and boost the equity considerably to use some loosey goosey real life numbers.

Let's say that the cost to add the additional square footage to your property is about $150 then if you could sell that property for $450 per square foot, then you essentially just tripled your money on the additions to your house. This is amazing and it's a huge opportunity if you're a homeowner.

Now, last but not least, let's jump into a strategy that maximizes both your property appreciation and minimizes your loan, and that strategy is simply being patient and staying in your property for five years or more.

Wow, five years is oddly specific. What made you choose five years as the specific window of time to stay in a house?

Well, let me tell you, staying in a property for five years has two major benefits.

The first is that five years is good for appreciation because it gives you some opportunities to weather a down cycle if that's the case in your local market, or to take advantage of an upswing in a market to really recognize some serious appreciation on your property.
The second advantage of five years, specifically as it relates to loans, is to remember that amortization table that I was talking about. Well, if you look at the first five years, almost every cent of the first five years payments are so insanely weighted towards paying off your interest that you are barely making a dent in appreciation.

So after that five year window, you start to get in a period where you're actually chipping away at appreciation slowly, more and more and more, and essentially every payment that you make past that first five year window is actually going to start making very meaningful differences in your principal reduction, which boost your equity and with your property going up in value, it boosts your equity even more.

So time is your friend when it comes to owning real estate with mortgages on it. Every day that goes by, you are gaining equity by paying down your mortgage and allowing the market to typically boost your property value as well.

So there's all this money trapped in your property, what to do with it, and what's the point of having all of it if it's stuck in the property?

I'm glad you asked, very smart question. It might be funny, but the reality is it doesn't matter how big your equity is if you don't know how to use it.

Let's check out some ways to strategically use the equity that you have now dutifully and smartly built in your property. The biggest strategy that I can personally recommend on using your equity is to pull it out of the property and invest in a smart strategic investment.

Now, on one hand, that could be another property, and you're just doing a rinse and repeat of the same strategy that you just mastered. On the other hand, it could be something that's safe and consistent like a fund that will pay you money every month while you build your equity over here. You can continue investing over here and build some serious dual cash flow.

So why do I recommend tapping into your property's equity and getting it out and putting it somewhere else? Why not just sell that property and then take that extra money that you made and then put it into an investment when you reinvest the money into something else?

Well, I'll tell you why, and the answer is fees and taxes that crush you on that sale. The reality is you're gonna get crushed by fees, like transaction fees on the buyer's and seller side of that transaction, mortgage fees on the new mortgage escrow fees that you're gonna incur to sell everything, and then you gotta worry about all the taxes involved on that. But there's a better way than going through a full sale to get access to that equity, and the answer is by tapping into that equity with a loan.

Let's jump into some options that you have to tap into your equity using loans. There are three main ways that you can tap into your home's equity using a different loan.

First is a home equity loan, second is a home equity line of credit, and the third is a cash-out refinance. Now, let me clue you in on a little secret that many wealthy people know that most others do not, and that is when you take a loan, it is tax free.

So when you get that home equity line of credit and you tap into it and you get that money back, that is a loan that's taking advantage of your equity, so you don't owe any taxes on that, That cash will sit in your hands tax-free. Also, an advantage of getting one of the loans.

I mentioned that you're gonna get much better rates than you would other places like credit cards or a personal line of credit, etc. Those are typically much higher with rates because a home equity line of credit or refinance is tied to property as collateral, so the bank feels safer, and gives you a better deal.

Let's start with a cash-out refinance. In a cash-out refinance, you are refinancing the loan that you have on your property because your property value has typically gone up and you want to increase your loan value in exchange for that money in cash in your hand.

Once you receive that money, it's up to you what you do with it, but don't be a dummy and invest it in something smart. Don't go buy a bunch of jet skis, okay, the wrong move.

Let's say your property's worth $400,000 and you have a loan of $180,000 on that property, and let's say you want to get $40,000 cash for an investment that you know has great fundamentals and will pay you a good return. What a cash-out refinance looks like is that you work with your banker lender to increase the value of the loan from $180,000 to $220,000, and then that extra $40,000 you receive and can go make that other investment.

Now, how much you can increase your loan on that property is almost entirely dependent on things like the property value, your credit, your payment history, etc.

So there is a limit to that, and it's typically much less than the property value because the bank typically requires a conservative loan to value.

But if you've held your property for a while and it's in a good market, the reality is you probably have this option of a cash-out refinance. If you want to use real quick and dirty math, you wanna expect a typical maximum LTV loan to value that the bank will lend on of about 80% being the upper ceiling, but there are other options to increase that above that 80% LTV.

Let's check these out. One option is a home equity loan. Oftentimes, you can make these a second mortgage on your house so that your first mortgage stays in place and the home equity loan becomes junior to that and gives you an additional loan for more cash out, similar to the cash out refinance, but in this case, it's typically a second loan on the property and is actually a separate loan altogether than your current mortgage.

In my opinion, a home equity loan is not my preferred route. If I'm going for a set amount of cash to get outta my home, I'll probably pursue the cash out refinance rather than take on a second mortgage, which might have higher rates.

But the third option is one that I'm a huge fan of, and that is a home equity line of credit, which means that you can pay and pull from that line of credit as needed. It gives you so much flexibility to do what you need to do if you are planning to invest that money.

A home equity line of credit is also known as a HeLOCK, and yes, it is a second mortgage again, on your property. Your first mortgage would stay the way it is, and you'd be adding a second mortgage to that house or property to that house. But the benefit with the HeLOCK is that it's almost like a credit card or a checking account.

You can pull and give that money back as you desire and the nice thing about a HeLOCK is you only incur fees and interest if you have that money pulled out so you can get the money when you need it, do what you need to do with it, with your investing strategies, and then put that money back in and you're not having to pay for it after it's back in the bank. So once you've taken out all this money, what should you be thinking about as far as an investment strategy of what to do with the money?

We talked about buying more property earlier, and that's definitely a strategy. You can check out any of our other videos on niche purchasing strategies to find ways to maximize your property value with that money by diving into a new niche. We go over things like Section Eight.

We go over things like short term rentals and Airbnbs etc. So check out our other videos on those investing strategies. But let's say you have all this equity.

Let's say you've set up a line of credit on your house, and let's say you want to do something very passive, not like those other strategies that take a lot of time and are a full-time business. Let's say you want to do something passive, then I recommend you take that line of credit and you put it somewhere like an income fund or an investment fund that will do all the day to day work on the investment for you, and instead with the money you're making from your investments, you're paying down not only your mortgage, but also making whatever extra money comes above what your mortgage is costing you. This is a huge strategy and a huge opportunity.

For instance, let's try some real life numbers. Let's say you have a home equity line of credit that is costing you 6% APR annually. Now, if you drew down that line of credit, you would owe that 6% payment to the bank for your mortgage. But let's say you had an income fund that you could invest in at 8%.

Now your 8% returns on your money minus your 6% cost of your mortgage means that you net that 2% difference absolutely free with zero effort on your part. You are just making that money every month in your pocket, and if you want to think of this on a long term strategy basis, as your property appreciates and you pay down your mortgage, your equity will continue to grow in the future again, which means you can go to the bank, refinance your line of credit, or do a cash out refinance, and then invest that money further into either a new fund or the same fund or more opportunities.

Yes, you can do this over and over and over, and your cash flow and your value and your investment value is only going to go up using this strategy over time. Are you seeing how amazing this is?

The bottom line is this, understanding how equity works is an essential step in preparing to buy a new house or any type of investment that you're considering, and most importantly, understanding equity strategically should always be part of the discussion. When evaluating your long term game plan, you need goals when you're spending this much money, whether it's your house or an investment, etc.

Otherwise, what is the point? What are you doing this for? If you don't know what the goal is with your investment, by leveraging the equity in your home and your investment properties, you'll be able to build your wealth reliably over the long haul and even replace your rental payments that will actually build your net worth instead of drain your bank account.

It's important that you explore your options when you're looking at ways to tap into your equity. Make sure to choose the right line of credit or finance option that meets your needs best. Before doing anything, I highly recommend talking with your banker, your financial planner, or your lender, to make sure you understand the ins and outs, but also to understand the opportunity that you have in front of you to invest those monies and make some extra value out of them to create massive wealth over a long period of time. It is just one of many strategies that you can use to boost your net worth significantly. If you wanna learn about some of the best other ways to grow your wealth and net worth over time, check out our website resources section at saintinvestment.com/resources.com.

We have tons of information, tons of educational videos, blog posts, even free eBooks for you guys, If you're taking equity seriously and you want to dive in even further on different types of loan strategies, the different types of loans that are out there, and ways that you could take advantage of these two leverage into other investment opportunities, check out the link to our video on adjustable rates versus fixed rate mortgages because understanding the difference could make you a lot of money and could give you the opportunity to invest in many different things rather than having your money stuck in one.