There’s a reason why people are told repeatedly to buy a home, as soon as they can, and build it up with a strong roof and so forth. It’s the safest way to protect your money. If interest rates go up that usually means a cost of living increase as well. Inflation has increased our cost of living considerably in less than a year. At the same time, home prices have continued to skyrocket.
The challenge many homeowners are having is that they cannot determine how to take advantage of their built up equity. Even if home prices drop 10%, that could mean hundreds of thousands in profits for anyone who has owned a home for over seven years. Selling a home is a great opportunity to cash in but if that’s not an option, do you really want to waste this golden opportunity to get ahead financially?
How Homeowners Benefit From Higher Rates
The trick in taking advantage of the higher rates and higher cost of living is to understand why the rates are going up. The goal is to slow down demand by increasing the costs so much that buyers decide to pass on these properties. While this may cause prices to reset, any shift would be considered temporary and minimal.
That period is when many home buyers can take advantage of a variety of options based on the equity in your home. By taking out a loan on your home based on the equity you’ve built, you can fix up your home or potentially buy a second one that you rent out to help cover the mortgage.
Having the advantage of a fixed expense lifestyle, or as close to one as possible, allows you to take advantage of higher pay periods due to inflation as well as to minimize concern and use of savings during lower income periods.
How Homeowners Are Planning To Invest
One key option homeowners have to invest their equity is with real estate. If homes are at $400,000 in your area and you see a dip in prices of 25%, the homes will now be down to $300,000. At this point banks will be more than happy to work with you on financing a deal where you use your equity to cover the down payment on a new property.
The idea then is to utilize hard work and focus on building your income while keeping expenses down. As you’re renting out the other property, the rent is hopefully covering the mortgage and all other costs associated with the property. This means you are responsible for the loans out on your home which is why you need to plan for the added expenses.
Never utilize this strategy if you are not prepared to go one year without a renter or if the house needs major repairs. The reason is because you could become cash poor meaning you don’t have the money to cover the loans and operating costs of these properties and therefore may have to lose one if the market does not rebound quickly enough. This is the main reason why people lose in real estate investing. If you can avoid being too aggressive and strike at the right time, you can have a great retirement investment option. Otherwise, keep it in your home either buy remodeling or just paying down your current loans.