Once you own some real estate, even just one single-family house, you can turn it into your private bank! And this bank can be:

• Your ready source for one or more loans.
• Your base for buying more income property.
• Your asset for improving your credit profile, making you eligible for more investor loans.
• Your key to building greater wealth in real estate¡ªsooner.

Income property can be your "magic carpet" to wealth. Starting with your first small house, you can build a portfolio of income real estate that can make you a millionaire in a few years or less. 

Use Your Real Estate Equity to Build Wealth

"Equity" is your ownership portion of a real estate property. Consider this four-step example:

1. You buy a two-family income property for $100,000, putting down $10,000 of borrowed money.

2. You hold the property for two years, making regular monthly mortgage payments, while collecting rental income that pays all your costs, plus giving you a profitable positive cash flow (PCF) every month. And you make many improvements to the important parts of each rental unit¡ªnamely the bathroom, kitchen, windows, doors, or other improvements.

3. You decide, after two years, that you'd like to refinance this income property to take cash out of it to use for other real estate investments.

4. You analyze the property, finding that the market value of your investment today is $180,000. An appraisal by a local real estate broker verifies your analysis. The broker says your property is worth $184,000! But you decide to use your own more conservative estimate of value: $180,000. You have paid off your mortgage to the point where you owe only $88,000. So your equity in the property is: $180,000 - $88,000 = 592,000. 

"But," you say, "I put $10,000 of borrowed money into the property. How do I get my borrowed money back?" The answer is easy. lust deduct it from your equity. So your equity becomes $92,000 - $10,000 = $82,000. Your next challenge is to use your equity. Here's how.

Tapping Your Equity for Profit or Fun

You can borrow against your equity¡ªthat is, take money out of it in the form of a loan against your equity¡ªto do any of several profitable or fun things, such as use the money:

1. To buy more income real estate. This is called "double leverage" by real estate wealth builders.

2. To fix up or rehab other real estate you own. Then raise the rents in that property to increase your monthly income and pay off
your equity loan.

3. To buy tax-free bonds that finance worthwhile real estate projects. (I regularly do this and have built a significant "nest egg" of ' tax-free real estate income, while helping provide better housing and medical facilities, for example.)

4. To pay for your dream vacation, buy a boat, an airplane, a sport utility vehicle, or other dream.
Note that all of the profitable investments, Numbers 1 through 3, will earn you money you can use to repay your equity loan. Of the three steps you can take, the first will probably earn the most money for you and enable you to repay your equity loan in the shortest time. 

Equity Allows Buying More Income Property

You have a hidden source of income from your 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:

1. You buy, with 550,000 of your equity money (from the $82,000 in the example above), an income property that pays you a PCF of S800 per month.

2. Your monthly loan payment on your equity loan is S500 per month. This leaves you with 3 net PCF of S800 - $500 = S300 per month.

3. You have increased your real estate holdings in dollars, while not taking any money out of your pocket to do so!

4. 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-561,500
100% of equity = $82,000
125% of equity-$102,500

Today, the 120 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!

How Is the Value of Your Equity Figured?

The property you bought for $1OO,OOO 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.

Quick Steps to Prepare Your Balance Sheet

• Contact your bank by phone and ask for the amount you currently owe on your mortgage¡ªand 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¡ª$190,000¡ªlook 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

 

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