Earning Money from Your Home's Equity

Say the words "home equity loan" out loud, and most people think "another monthly payment." But home equity can also equal megabucks if used as an investment tool. It's true: The equity from your home can be the working capital you need to initiate a slew of investment options.

Do you ever wonder where wealthy people got their start? Chances are that many used a small amount of capital to begin building wealth, one investment at a time. That sounds easy, but where do you find the capital to get the investment rolling? The answer is simple: your home equity. Whether it's a home equity loan or a home equity line of credit (HELOC), your property can help you start your own financial empire.

Using property to buy property

One popular strategy is to use home equity to make a down payment on another property. After you've made the purchase, you have several options. First, you could fix up the property and sell it for a higher price, a tactic known as flipping. The profit you make from that investment could then be used to purchase more properties. Second, you could hold onto the property and rent it out. The rent would cover your mortgage payments, allowing you to reap the rewards of a tax deduction (on the loan interest) and any appreciation that the property will have over time.

Make your way to the market

Another wealth-generating tactic is to use your home equity to purchase stocks, bonds, or other investments. Depending on the home equity loan rates, this can prove to be lucrative, especially if your return on the investment proves to be significantly higher than the interest rate paid on the loan. Again, you reap the tax deduction benefits of the home loan.

Rehab your habitat

Mortgages can also be used as home improvement loans to renovate your house or apartment. Build an addition, remodel your kitchen, upgrade your bathrooms-these are all methods for improving the value of your property. If you plan to move to a more expensive house, this is an ideal way to make the transition affordable.

Home equity has long been used as a popular debt management tool. But the astute investor can use a little of his property value to generate more than a little wealth.