Think you need to have your home paid off before you can invest in another? Wait that long and you may never get the chance. Instead, use your home equity to secure a loan, line of credit or second mortgage. While it may sound scary, real estate is almost always a good investment and one that increases in value—even without any work on your part. Plus, real estate is considered good debt because it generates income.
What Is Home Equity?
Home equity is the difference between the value of your home and how much you owe on your mortgage—or how much money you’d make from selling your house right now. For instance, if your home is worth $800,000 and you owe $500,000, your home equity is $300,000. And your equity goes up as the value of your home increases. So if that $800,000 house increases in value by $100,000, your equity would be $400,000.
This is wealth many people don’t take advantage of, but you can. In short, banks and lenders will let you borrow against the value of your home at a low interest rate so you can invest in a new home or investment property without an overflowing bank account. Passive income or a vacation home are within reach!