Those who have read Charlie and the Chocolate Factory will remember the golden tickets. In this wonderful book by Roald Dahl, the golden ticket was found in a bar of chocolate and represented the opportunity for five lucky children to tour Willy Wonka’s chocolate factory.
What does this have to do with your finances?
There is one strategy that I refer to as your golden ticket: it’s using the equity in your home. That is why your home equity is called – your Golden Ticket.
What is equity?
Let me first explain what I mean by equity before we look at why it can be a golden ticket.
Simply put, equity is the difference between what the property you live in (your home) is valued at and the amount that you owe on the property.
As an example, if your property is valued at $1,500,000 and you owe $500,000 on it, the equity in your property is $1,000,000.
Kick starting your journey
There is a way the property you live in can help to produce income and become a useful asset: you use the equity in your home to invest in income producing assets.
How do you do this?
In previous articles I have looked at structuring your loans for success and creating a loan account for investing as well as an account for your mortgage. It’s these funds you borrow to purchase assets that can create income.
You can use the home as security for the investment loan. Remember, banks love having security when lending money.
Lets look at an example.
Using the above figures, with a house that is worth $1,500,000 and you owe $500,000 on it, a bank would, in most cases, be happy to lend you up to 80% of the value of the property or $1,200,000.
As you owe $500,000, the bank would therefore be ok in lending up a further $700,000.
Now this of course is subject to you being able to service and pay back this debt, but even if you borrowed a smaller amount, you can see how it can kick start your journey to Financial Freedom.
Creating the assets you need to achieve Financial Freedom ($3,000,000) can be tough. But one of the best places to start is by tapping into the equity in your home for investment.
This is why it is the Golden ticket and should be one of the most valuable steps you take in tapping into.
If you want don’t know how to start to get your finances sorted and start your journey to Financial Freedom, join me at our next 5@50 event. You can pre register your details here.