I’ve been thinking lately about putting some of the recent added equity in my houses to use. What would be possible methods to unlock the built up equity in one’s home? These were the ways I could initially think of:
- Refinance your house. For example if I still owe 240k but my house has gone up to 430k, and the bank is willing to lend me up to 80% of the value (.8*430k = 344k), I could refinance and get 344k – 240k = 104k cash now to put to work elsewhere. Albeit a result would be an increased or decreased mortgage payment depending on what I had originally had financed it at.
- Apply for a home equity line of credit (HELOC). I’m unfortunately not as familiar with these and they seem kind of hard to get access to right now (I’ve been having trouble and am leaning towards a cash out refi), but essentially it’s a locked and loaded credit card, attached to the equity in one’s property. Using the above example maybe instead of refinancing I apply for a HELOC and get approved for 104k of credit. That would be the limit but I don’t have to use it right now. If in six months I find a great deal I could purchase the property then and make payments, just like one would on a credit card.
I was listening to Chris Naugle, who we just recently had on the podcast (not yet released), speak on one of his YouTube videos and he mentioned a new option, which didn’t involve additional debt. It’s through a company called Quantum RE.
I don’t want to state any hard insights/opinions as I’m just looking through it for the first time and still don’t know a soul that has actually used them, but I’ll summarize what I’m seeing so far. At a high level I understand it as they’re sharing in the potential appreciation/depreciation over the long term (seems like after 30 years you’d be contractually obligated to sell), and they’re paying for that right today, in cash and with no additional debt for the owner. Going into a contract with them doesn’t increase your mortgage payment one cent, as there’s no additional debt involved. Obviously if they’re willing to pay cash today for possible appreciation, as houses could go down (which it also seems like they share in potentially), they’re very bullish on the real estate market.
When I put in some numbers it shows the possible amount they’d send in cash for the right to share in future appreciation. What I don’t know is how much of the appreciation they take. An intro video mentioned 10-30 percent of the future appreciation they’d take, but I’m guessing I wouldn’t know until they underwrite the property.
There may be something here and an option to be further investigated. I am trying to think of the people this may be truly beneficial for:
- Maybe someone who can’t qualify through traditional financing right now, maybe they lost their job but have a ton of equity locked into their home, but could use cash for living or another investment
- Maybe you’re tired of dealing with traditional banks for a refinance and don’t want additional debt
- Maybe you aren’t so bullish on the real estate market/your specific real estate market and want to diversify some of the risk into other opportunities
If anyone has used this service I’d be curious to hear your experience. I’m attaching a link to the website and interested to hear your thoughts.