The definition of equity is the monetary value of a property or business. In regards to real estate, equity can be described as the value of the owned real property, minus anything that is owed on the property. Lets say that for example, a homeowner owns a home valued at $600,000 but has an outstanding mortgage loan balance of $425,000. Therefore the home owner has $175,000 in equity.
There are several ways investors or that home owner can profit from real estate equity. First, your need to understand that there are 2 parts of the market: public equity and private equity. Deciding which way to invest will depend on the investor’s available capital, time allotted and the total risk he/she is willing to take.
Lets say for example a young couple had married young and only had enough of a down payment to pay for a small Vancouver Condo in downtown East Vancouver. After a few years, they had paid off a decent amount of that condo and are now expecting a new addition to the family. Using the amount of equity the two had built up, the couple could very likely go to the bank and ask for a second mortgage using the equity from their condo as a down payment.
As long as they have good credit and income, they would be able to buy a home or townhouse in Vancouver West, Burnaby or Richmond just outside Vancouver city, which would provide for a little more room and better setting to raise a family. Hopefully the couple had purchased the condo in Vancouver brand new and were able to rent out the condo, which is often an excellent investment property, as rent costs of Condos of downtown Vancouver will likely supersede the cost of a mortgage payment in most cases.
If you are interested in using equity to purchase a new home or just an investment property for addition income or future return, call us. We would be happy to sit down with you and show you how to make smart investments that pay off in Real Estate. We would also be happy to point you in the right direction for a local mortgage professional who can run some number by you to help you understand the process and the current interest rates and loan markets.