6 Ways to Use Real Estate Equity

EquityOwning real estate opens opportunities to continue building generational wealth and pursuing your goals. As the property or properties you own build equity, there are many ways you can leverage that equity. If you're considering homes for sale in Canmore, keep in mind that real estate investments can unlock an entire world of opportunity. Check out this post for 5 ways your equity can be used. 

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What is home equity?

When you purchase real estate, even when it is financed and you do not technically own it yet, you will begin to build equity, beginning with the difference between what your home is worth and how much you have borrowed to purchase it. 

Home equity is the difference between the value of your home today and your mortgage payoff amount. For example, if the home you own is worth $750,000 but you owe $600,000 on it, you have $150,000 in equity. As the market grows, your home will naturally increase in value, and there are also things you can do to improve the property and accelerate the growth of the property value. 

How can equity be accessed?

There are a few ways to access this equity and use it for other goals. You can sell your home and pocket the equity as cash, or you can refinance and pull some of the equity out. There are also ways to borrow the equity, called a home equity loan (HEL) and a home equity line of credit (HELOC). 

A home equity loan allows you to borrow against the equity you've built in your home. The loan amount is typically determined by the difference between your home's market value and the amount you owe on your mortgage. This type of loan often comes with a fixed interest rate and can be used for various purposes such as home renovations, debt consolidation, or major purchases.

Similar to a home equity loan, a HELOC lets you borrow against your home's equity. However, instead of receiving a lump sum, you're given a line of credit to borrow from as needed. HELOCs usually have variable interest rates and can be utilized for ongoing expenses like home improvements, education costs, or emergency funds.

After you figure out how much equity you have, and how you will access the equity, you can leverage it towards goals like these.

1. Home improvements

Equity can be reinvested back into your home through renovations or upgrades. By enhancing the value and appeal of your property, you not only improve your living space but also increase its market value. Whether it's remodeling the kitchen, adding a bathroom, or upgrading to energy-efficient features, investing in your property can yield long-term returns and further build equity.

2. Retirement planning

For homeowners nearing retirement, equity can play a vital role in financial planning. Downsizing to a smaller home or utilizing a reverse mortgage can allow you to access your home's equity to supplement retirement income or cover healthcare expenses. Properly managing and leveraging your home equity in retirement can contribute to a more secure and comfortable future.

3. Investing in real estate

The equity you have built in your personal residence or income properties can be leveraged toward future investments. For example, you can reinvest your equity in a vacation rental in Canmore, where short term rental properties have proven themselves to be a profitable source of passive income while allowing you to own an appreciating asset at the same time. 

The more properties you own, the more you will benefit from building equity. There are few investments that offer as many opportunities for multiplication and generating passive income as real estate. 

"Using your home equity to invest in another real estate property just multiplies the benefits of homeownership. Once you own one property, a world of opportunity opens up to grow your portfolio." -Devin Stevens, Canmore Real Estate Group

4. Starting a business

Entrepreneurs may leverage their home equity to fund the launch or expansion of a business venture. Whether it's financing startup costs, purchasing inventory, or securing working capital, using home equity can provide entrepreneurs with access to relatively low-cost capital compared to traditional business loans or credit lines.

5. Education expenses

Funding higher education for yourself or your family members can be costly. Even if your student is attending a publicly funded university, using home equity to cover educational expenses can be a practical alternative to traditional student loans or unsecured borrowing. Some parents find that by investing in a condo or small house near the university, they can provide a home for their university student while continuing to build their own portfolio. 

6. Pay off High Interest Debts

Bill Gassett, owner of Maximum Real Estate Exposure, shared an interesting, excellent thought with us.

"One of the things many homeowners who have high-interest debts don't often think about is using a less expensive home equity loan to pay them off. 

For example, if you have significant student loans or high credit card balances, you can use the equity in your home to pay them off. Sometimes, the interest rate can be more than double what you would pay for a home equity loan.

By doing this, you can save a substantial amount of money!"

When you are ready to learn more about buying real estate in Canmore, contact us. We're here to help you reach your goals. 

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