I'm the type of person that reads every email, and can't resist financial advice magazines and personal finance blogs. I've read all of the personal savings advice and until recently, I would have told you there is nothing new under the sun. Anyone trying to tell you there is a "secret formula" to building wealth is more than likely trying to sell snake oil. With that said, Silicon Valley start-ups are innovating in the investment space and helping to create new products that fast moving smart investors will be able to capitalize on. One such startup allows you to tap into the equity of your home without taking on a loan. If your home has equity, they will give you a lump sum of cash in exchange for the return of that amount in ten years plus 25% of any appreciation that takes place over the next ten years. If you believe we are close to the top, then this works out to be a good trade in your favor. With that lump sum, you can turn around and invest in an investment property that's yielding 10% in rents. But where can you find one of those? Once again, another Silicon Valley startup has taken the guesswork out of real estate investing and has located these properties for you, with tenants already occupying the property. So for example, a homeowner might take out $100k worth of equity, not have a monthly payment like a home equity line might, and turn around and purchase a $100k investment property that nets $800/mo. That's $10k/yr income. In 10 years time, our adventurous homeowner has saved up $100k worth of rental income plus invested that income at 5% annual interest, and accumulated $113k. With those funds, he or she repays the original lump sum plus appreciation, and is now the proud owner of an investment property free and clear that is likely worth more now after ten years, and possibly fetches a higher rent after ten years time. And there you have it, financial wizardry for the masses. This is arbitrage, trading your equity in a slow moving or stalled housing market and investing in a high yielding or undervalued housing market.
If you'd like more details on how to put this transaction together, feel free to contact me at 949.667.2887 or email@example.com.
- Brian Nguyen is a senior loan consultant (NMLS 659743) who learned more about this stuff than he ever intended to. The opinions expressed here are solely his own.