Equity Optimization

Equity Optimization

What does it mean?

When you have large amounts of equity in your home, or any property, it's like having bundles of one hundred dollar bills stuffed in the space behind the drywall as insulation. Your home is the worst place to put money. It's a place for sure, but it is also a vehicle or a tool. You could choose to put your money into a checking account, a savings account, money market account or mutual funds or the stock market. You could choose to put your money into municipal bonds or over-fund a universal life insurance policy. All of these are better places than behind the drywall in your home.  Equity earns a zero percent return on your investment. The home will appreciate or depreciate regardless of how much equity is in the house.

I am not, nor do I ever, suggest taking money out of your house in order to buy anything that depreciates or has high risk associated with it. 

Equity Optimization is merely moving equity from a home and putting it to work for you. The better return you can earn, the more you are optimizing your equity. Read more about this under Equity Harvesting.

Let me explain. When you remove let's say for example $100,000 equity from your home, you are going to pay interest on this loan. This loan interest is normally a very low rate because it is collateralized. It is tax deductible in many situtations and you pay simple interest on it. It's low interest, tax deductible and simple interest.

Conversely, when you invest money in the right vehicle you can earn interest on it.  You could, if you are careful in your investigations, earn high interest that is compounding and tax free. It is high rate, simple, and tax free!

So, in short, if one were paying simple interest at 6% on a 100K home equity loan that is tax deductible, one might only pay $4000 per year as an after tax cost.

If you then invest that 100K into a high rate of return vehicle at, let's just say 7% with compounding growth, that is tax free, you would have $7,000 in the first year that would grow to almost one million dollars in 30 years, after you paid the simple interest payments on your loan. 

This is just a beginning,  there's a lot more to learn. I conduct a seminar often on Equity Harvesting. Call my office for more information.