In this series we have talked about ways to put your dead equity to work for you. All options require pulling out excess equity (typically equity over 20% of the home’s value). The first option was to renovate / update – this allows your equity to build more equity by making your personal home worth more monetarily as well as allowing you to enjoy it more. Option #2 was to use your equity to buy a vacation get-away. While you will also get to enjoy a cabin in the mountains or a beachfront / lakefront property, these properties often appreciate nicely over time as well, making them a good investment. The third option is to leverage your equity and build a real estate investment portfolio. This is great for so many reasons because leverage really helps increase the ROI and the tax deductions of all the expenses associated with an investment property, including the juicy depreciation expense, help you to manage your cash flow. The ability to defer capital gains with a 1031 exchange is another huge benefit of real estate investing.
The final piece in this series is the strategy where you buy a home where your child / children will be attending college. A nice 3-4 bedroom home with 2+ bathrooms that’s close to campus can be a great investment both now and when your children attend college.
You get all of the great tax deductions of an investment property plus you are in control of your child’s housing expense and, with a little luck, it may be a net-zero if the income from the roommates pays for the mortgage, or better, gives you a positive cash-flow. Assuming the college your child will be attending is in a decent real estate market, your house will likely appreciate from the day you buy it. That means the wealth you are creating in appreciation can help offset the costs you outlay for tuition and other expenses and the increased money you get to keep from your paycheck thanks to the tax deductions (see above or check out this post) can help you fund a 529 (education account) or at least make it easier to pay tuition, books and other expenses when your child is at college.
If you are interested it putting your (dead) equity to work for you using any of the four options in this series, or if you have another idea you’d like to use for your equity, please contact me to get details specific to your situation and current rate: 702-812-1214, 801-893-1737 or jed.wunderli@noblehomeloans.com.
Disclaimer: Always consult a CPA for the latest tax laws as they pertain to real estate and investing.
