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In effect, these readers have another hidden source of income from their equity buildup. Since increases in your equity occur while you’re awake and asleep, you can say you have another “job” which is paying you tax-free income. And you’re really not doing any work for this income. That’s why I say you’re a smart person to be in the world’s best business!
Taking Steps to Repay Your Equity Loan Quickly
Here are steps you can take to repay your equity loan in the fastest way possible:
• You buy, with $50,000 of your equity money (from the $82,000 in the example above), an income property that pays you a PCF of $800 per month.
• Your monthly loan payment on your equity loan is $500 per month. This leaves you with a net PCF of $800 - $500 = $300 per month.
Turn Your Real Estate Holdings into Your Private Bank
• You have increased your real estate holdings in dollars, while not taking any money out of your pocket to do so!
• You repay $500 a month to your equity lender to “retire” (that is,
pay off) your equity loan that you used to buy an asset that repays
its own cost! Such a strategy on your part verifies the famous
statement that “The money money makes makes money!”
How Much Can I Borrow on My Equity?
Equity loans seem to get more generous every day of the week. Typical loans you can get with your $82,000 equity are:
• 75% of equity = $61,500
• 100% of equity = $82,000
• 125% of equity = $102,500
Today, the 125 percent equity loan is now a very popular type. Why? Because you get more cash in hand. Meanwhile, as you pay off your equity loan, your property rises in value with the passage of time. And when your property value exceeds what you owe on your equity loan, you can go back and get another equity loan!
So, good friend of mine, in just two years, you—as a “Beginning Private Banker”—multiplied $10,000 of borrowed money from a credit card line of credit or a personal loan into cash ranging from $62,500 to $102,500!
Doesn’t this show you—very quickly—the enormous power of real estate? I almost feel like shouting, “I told you so!” You, while earning a monthly Positive Cash Flow from your property, which rose in value while you slept, also:
Multiplied a borrowed $10,000 by a factor of 6.25 to $62,500, or by a factor of 10.25 to $102,500!
Where else could you do this? Not in the risky stock market. Not in some unknown business of your own! Only in real estate.
That’s why it’s the world’s best business! And if you use your equity money to buy another income property, the positive cash flow from that property will repay your equity loan!
How Is the Value of Your Equity Figured?
The property you bought for $100,000 was worth $188,000 two years later. How was the value of $188,000 determined?
Here, good friend of mine, is how the value of real estate you own is determined in today’s real world of real estate investment. Read on for info on what really happens.
As you learned earlier, I’m director of a large general loan and real estate lender. When someone comes to us for a real estate loan, we ask for a financial statement listing what the prospective borrower (such as yourself) owns—their assets—and what they owe—their liabilities. This is called their balance sheet.
To prepare your balance sheet for your property that you paid $100,000 for, you:
Quick Steps to Prepare Your Balance Sheet
• Contact your bank by phone and ask for the amount you currently owe on your mortgage—and they tell you it is $88,000, as listed above.
• Walk out in front of your beautiful income building and, thinking about the improvements you plan, and those you’ve already made, along with rent increases you’ve made and plan to make, decide the building is now worth $190,000.
• Look in your local newspaper for similar buildings and see that they’re priced from $175,000 to $210,000. This makes your price—$190,000—look right.
• Contact a local real estate agent and ask that person for a price quote, after giving full details about your property. That person says, after checking “comparables” (prices of similar properties sold in the area), “$188,000.” So you settle on that number and
Turn Your Real Estate Holdings into Your Private Bank 221
enter it as an asset on your balance sheet when you apply for your equity loan.
And do you know what, good friend of mine? As lenders, we:
• And all other lenders I know accept your estimate of the current value of your property.
• And some other lenders I know rarely go out to your property and make a physical inspection of it. We accept your word as to its condition and value. If we doubt your word, we will have a “drive-by” inspection in which an inspector drives by the property in an auto and estimates its value from the external appearance of the building and land.
• And all other lenders I know use your listing of assets as a critical element in our loan decision. In brief, the more assets a borrower has, the easier it is for that person to get an equity loan.