The document discusses how to use home equity as an investment. It explains that home equity loans and lines of credit can be used to purchase investment properties, but there are risks like missing payments if the investment property has issues. It recommends having savings to cover repairs and periods without tenants when investing in real estate with home equity funds.

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INVEST IN
REAL ESTATE
HOW TO USE HOME EQUITY TO

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OVERVIEW
If used properly you can take your home equity and transform it
into an investment.
Many people make the mistake of accessing their home equity for
the wrong reasons. For example, using your home equity so that
you can go on a lavish vacation or purchase an expensive car is
just about the worst thing you can do.
However, there are ways that you can leverage your home equity
and put it to work as an investment. Take a look at the other slides
to learn more.

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LINE OF CREDIT
OR LOAN
When most people think of home equity, they think of home equity
loans also known as second mortgages.
Loans are popular options due to their low rates and favorable
terms. However, there isn’t much flexibility with loans. You’re given
the loan amount, and then you have to start paying it off.
On the other hand, a home equity line of credit gives you more
control. There is a maximum amount available to you, but you
decide how much to take at and when. This way you don’t owe
interest on money you don’t withdraw.

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RISKS
There is risk associated with every investment. Using home equity
debt to invest in a property is no different.
If there are issues with the investment property that cause you to
miss payments on your home equity loan, you could end up losing
both properties.
Before you take out a home equity loan, make sure you are aware
of the risk and you have a plan to continue paying even if
something goes wrong.

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TAXES
Home equity loans and lines of credit can usually be categorized as
itemized deductions.
As long as you don’t have to pay the Alternative minimum tax, you
will be able to deduct up to $100,000 of your debt.
When you use your home equity to purchase a rental property,
though, you can list your debt and the rental property price on
Schedule E.

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BUYING INVESTMENT
PROPERTY
Before you purchase an investment property make sure you have
a plan to take care of potential home repairs.
Make sure you have a good amount of money saved up to deal
with such expenses. Having extra money saved up also comes in
handy when you have trouble finding tenants to rent your
property.
While it is tempting to buy a cheap fixer-upper, sometimes they
can be more work than they are worth—especially if you are
inexperienced with rental properties and repairs.