How is equity benefitial?

7 Replies

Javon:

Let's start with a definition. Equity is the portion of the property value that belongs to you. For example, if you have a $100,000 house but have a $80,000 mortgage, your equity is $20,000.

Equity, when it is sitting in a rent property, doing nothing, really isn't providing you any benefit at that time.   But, equity can be turned into cash by either refinancing or selling.  In that sense, it is a store of wealth that you can tap at some point.  That is the most beneficial thing about equity.

Javon:

Refinancing does not cause the value to go up.  If the value has gone up, it gives you the option to pull cash out with a refinance.

Another example:

- You buy a house for $100,000 and have a mortgage of $80,000.   Your equity is $20,000

- A few years later the value of the house has gone up.  The value is now $150,000 and you may have paid the mortgage down to $70,000.  Your equity is now $80,000

- You do a cash-out refinance and put $45,000 in your pocket (less closing costs) and now have a $115,000 mortgage so your equity is now only $35,000

Originally posted by @Javon Miner :

Hi my name is Javon. As of right now, I’m trying my best to gain as much information on the fundamentals of Real Estate but I’m having a hard time wrapping my head around “Equity” and why it’s beneficial. Can someone break it down and help me understand?

Aside from the cash out refi or selling equity does a couple other things for you. It increases your net worth, which can help if you move into commercial properties. It also gives you the ability to take out lines of credit on your property. These lines of credit can be used to make you more competitive in the marketplace because it enables you to do things like buy properties cash.

@Brent Crosby thanks you so much for your answers. You’ve actually help me understand more about how equity works but I have soo many other questions concerning real estate. As I said, I’m new to real estate and I’m trying my best to learn everything I can before I take my exam. Do you mind if you could share some of your knowledge and experience in this profession to help me understand more about this field? If you have this time, We cam exchange emails so I can get in contact with you.

@Javon Miner no prob, I’d say just message me on BP is probably your best bet. Also, follow me on here so you can see other posts I do and learn from them.