5 Smart Reasons to Use Your Colorado Home Equity to Buy Another Home Now!

Besides living in the beautiful state of Colorado, soaking up 300+ sunny days with great weather and a vast array of outdoor and cultural activities, Colorado has experienced one of the nation’s highest home appreciation rates.   Now is a great time to capitalize on one of the perks of home ownership: your home’s equity.

Before getting started, here are some fun facts about the average home equity in the U.S., according to  the February 2024 Mortgage Monitor:

• Mortgage holders gained $1.6T in equity in 2023 to reach an aggregate of $16T, the highest year-end total on record, two-thirds of which is held by borrowers with credit scores of 760 or higher.

• The average mortgage holder now has $299K in equity, $193K of which is “tappable” and could be withdrawn while still maintaining a healthy 20% equity stake.

 

The 5 Smart Reasons to Use Your Colorado Home Equity to Buy Another Home Now:

 

1. You have a lot of equity but limited cash/funds. When you purchase an investment property or a second or vacation home, you will normally put down a 20% down payment to avoid paying private mortgage insurance, PMI.  Some lenders will require a 75% loan-to-value, LTV, on an investment property so that you may need more money for a down payment.   You can tap into your home equity to resolve limited funds for a down payment.

 

2. You want to create a passive income stream. You can generate passive income by purchasing an investment property using your home equity. Here are two options.

 

• • A Long-Term Rental. You will rent it out and receive rent/passive income each month.  A property management company is usually recommended for collecting the rent, maintaining the property, etc.
• • A Short-Term Rental.  You may want to list it on websites like Airbnb or VRBO to charge more per day for a shorter period than renting it out at a consistent amount. A word of caution: Make sure that you comply with all the local requirements and regulations before making it a short-term rental.

3. You want to accumulate wealth. Investing in real estate is a great and safe way to do so. Property values have historically appreciated at 4.1% for the past 30 years. Home prices have risen for 11 consecutive years; in 2021, they increased by over 18% – the highest jump on record.  Many homeowners became instant millionaires.

 

4. You want to maximize your return on investment while minimizing your tax liability. You can deduct mortgage interest from your taxable income using your home equity. Additionally, you can claim expense deductions for property taxes, property insurance, and the costs associated with managing and maintaining the property. Depreciation can also be claimed as an expense.  The bottom line is that leveraging debt and utilizing tax benefits can significantly enhance your investment returns as an investor while minimizing your tax liabilities.*  This is how and why Robert Kiyosaki owns 15,000 houses.  As he says, there’s nothing wrong with buying a house—except he uses debt to buy it and pay no taxes.  Having a handful of investment properties can greatly improve your financial well-being.

 

5. You want to buy a 2^nd Home or Vacation Home. You have worked hard all your life and want to enjoy life more.   You can use your home equity to buy your home away from home.   You deserve it.

 

 Bonus:

Another Way You May Want to Use Your Home Equity

 

 Help your son or daughter or grandkid buy their first home.

One of the most common hurdles a young people have is coming up with a down payment for their home.  Down-payment assistance programs help, but they may require certain conditions, such as mandatory counseling, having to repay it if you sell, higher interest rates, etc.   You could use your home equity and gift it to your son or daughter for their downpayment.  Gifts up to $18,000 a year are exempt from the gift tax.*   That way, your son, daughter, or grandkid will be able to achieve the American Dream of having their own home and benefit from home ownership like you do.  They will appreciate it and you are leaving a legacy.

 

So, what are the most common ways of tapping into your home’s equity?  They are Cash-Out Refinance, Home Equity Loan, and Home Equity Line of Credit, HELOC.  I will discuss the pros and cons of these in another blog post.

The only way that I will purchase an investment property, a second home, or a vacation is with Paidoff™, and I recommend that you do the same if possible.

I will discuss all the reasons why I say this in another post.  I will only say that you will pay off your home Much Faster and get a very large 30-year Home Equity Line of Credit with all the features that will allow you to buy investment properties and other houses easily with Paidoff™.

If you are looking for a real estate investing club or want to invest in real estate, we highly recommend Investors Realty Resources of Colorado, IRROC.  Brad Podhajsky will take great care of you.

 

* Please consult your tax advisor or CPA.