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Return on Equity

Return on Equity: Guide to Using Equity for Wealth Building

May 07, 20243 min read

"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world." — Franklin D. Roosevelt

When it comes to building wealth, one of the most underutilized strategies by homeowners is leveraging their existing home's equity. Despite being a potential goldmine for increasing your financial leverage and diversifying your investment portfolio, many overlook the benefits of tapping into this valuable resource. In this article, we'll explore the concept of Return on Equity (ROE) and how you can use your home's equity to amplify your wealth-building efforts, including a unique opportunity through our debt fund that deploys capital secured by the property in first lien position.

Understanding Home Equity

Home equity is the portion of your property that you truly own, calculated by subtracting any outstanding mortgage balance from your home's current market value. For instance, if your home is valued at $500,000 and you owe $300,000 on your mortgage, your equity would be $200,000. This equity increases as you pay down your mortgage and as your home appreciates in value over time.

But rather than letting this equity accumulate untouched, why not put it to work? By understanding and utilizing ROE, you can make informed decisions to potentially increase your financial returns.

Three Ways to Use Home Equity for Wealth Generation

✔️Invest in Real Estate

Using your home equity to finance the purchase of an investment property can be a smart way to grow your wealth. This approach not only offers the potential for capital appreciation but also generates rental income, which can provide a steady cash flow. Real estate investments can also offer tax advantages, such as deductions for depreciation and mortgage interest, making this option financially attractive.

✔️Fund Short-term Investments

If you're looking for quicker returns, consider using your home equity to fund short-term investments, such as house flipping or investing in real estate requiring renovations. Our debt fund offers a unique opportunity here, providing a passive investment option where your funds are secured against a physical asset. This kind of investment contrasts with more volatile markets like stocks and bonds, offering a tangible security and potentially quicker returns.

✔️Enhance Your Home Value through Improvements

Another effective use of home equity is funding major renovations that increase your property's market value. Strategic home improvements, such as kitchen remodels or adding an extra bathroom, can significantly boost your home’s resale value. This not only enhances your living experience but also improves the overall asset value, which is crucial for long-term wealth accumulation.

The Power of Secured Investments

Our debt fund plays a crucial role in this strategy by deploying capital secured by the property in first lien position. This means your investment is backed by real estate, providing a layer of security not typically found in other investment avenues. With this approach, investors can tap into their home equity to fund new ventures with the assurance that their investment is protected.

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Leveraging Return on Equity

The concept of ROE is simple: the higher the returns you can generate from your equity, the faster your wealth can grow. By making smart decisions about how to use your home equity, such as those outlined above, you can maximize your financial potential. Whether it's through purchasing additional properties, investing in short-term real estate projects, or enhancing your current home, each strategy can contribute to a more robust financial portfolio.

Take Action Today

If you're ready to harness the power of your home equity but are unsure where to start, consider speaking with a financial advisor or connecting with our team. We can provide detailed insights and guidance tailored to your specific financial situation and help you navigate the complexities of real estate investments.

Unlocking your home's equity can be a game-changer in your wealth-building journey. By understanding and applying the principles of Return on Equity, you can take proactive steps towards securing a more prosperous financial future for you and your family. So, don't let your equity sit idle—make it work for you and watch your investment grow!

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Christopher Borden

Chris Borden is a seasoned executive with over 25 years of business expertise spanning operational, financial, marketing, and commercial real estate strategies. Previously President of Hawaii's second-largest retail food chain, Chris has transitioned from his earlier roles to become a leading figure in the real estate investment sector. Alongside managing six businesses focused on real estate investing, Chris and his wife have founded two non-profit organizations aimed at bolstering education and economic growth in underserved regions. A proud family man, Chris has transacted over $14 million in investment debt loans in the first year and a half and expanded into large commercial investments totaling over 500 units. His dedication, industry acumen, and adaptability have earned him a reputation as a reliable and trustworthy partner in the sector.

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