Real Estate Treasure Hunt – Residual Income
Equity equity equity! That’s what we’re going to be talking about today. What is it? how do you use it? how do you leverage it? understanding it in in real estate is, is probably one of the most important fundamental concepts of knowing how to become a multi-millionaire. Kris Krohn with limitless TV and that’s where we’re headed today. So this is one of the most elemental concepts in all of real estate. You need to understand what equity is and today in talking about the three types of equity, let’s just start with this very basic definition of what is it. So here’s the example, if I show you a house right here and let’s say that this house has a value right here of $100,000 but what I owe is $50,000 then the question is how much equity do I have? If it’s worth a hundred thousand and it’s half paid off with a fifty thousand dollar balance left, then the equity right here is $50,000. So fifty thousand dollars of equity. Man I could use that to go buy another house. I could sell this and buy two more houses. And remember in real estate from the investor’s point of view, we look at real estate and equity more equity usually equals a higher cash flow. A higher cash flow equals a more residual income. The more equity you have, the more homes that you can buy. So equity is something that I really like a lot. So let me show you now the three different types of equity that exist. All right? The first type of equity is called, sweat equity. So here’s the deal on sweat equity, Sweat equity says here’s this house, and this house right now it has a value of $100,000 and I was able to purchase this price, purchased this house for 80,000. So when I say that I owe 80,000 left on it but this house is a special kind of house because it’s a fixer-upper I bought it in really horrible condition and it’s worth a hundred thousand in horrible condition. However, I bought it knowing that if I were to put some money into it and put some sweat equity in and fix it up that that new value could change to a hundred and twenty thousand dollars. Okay you’ve heard of people doing this before you watch those TV fix and flip shows right? This is essentially the concept is people are making a play at sweat equity. There’s the possibility of more equity but I’ve got a sweat which means I gotta work the tools and I gotta drop in some carpet and some pain and fix holes in the walls and do and solve problems. If I solve problems, I can walk into equity. Me as the investor says, all right cool. I can buy it for 80,000. It might only be worth a hundred thousand today but if I put in five or ten thousand dollars worth of work I’m gonna get an immediate awesome ROI on that. I’m gonna make, I’m gonna get that value up tohundred and twenty thousand and in this case I would have how much equity? Eighty thousand is what’s owed, one hundred and twenty thousand is now and it’s worth. There’s a 40,000 dollar equity gap and again why do I like that? More equity means that I got more of the house paid off which means more cash flow. More cash flow equals more residual income this is muy bueno good stuff. All right so that’s the first one. Now the second one that you’re probably more familiar with is what I call patient equity. And what this means is, hey I’m not an investor, I’m not trying to get a deal, Kris I understand that that’s your frame of reference but I’m just a, I’m just a typical buyer that wants a home for my family. And when I went out in the market, I found a home that was worth a hundred thousand dollars and I put just a basic downpayment on it. You know if it was a first-time homeowners purchase I put three or five percent down. I’m essentially probably gonna owe around $95,000. And right now, there’s like really no equity in this home. However, what does real estate do with time? It goes up in value and it does so looking a little bit more like this but if you take all the bumps and bubbles and all that out, it’s constantly going up in value. So patient equity says, if I just wait five years my house at a 5 percent growth rate if that’s what’s happening in my market, that might compound and perhaps in five years my home is worth 120 thousand dollars. Thank you inflation. I can sell that later and actually get $20,000 out of it. This is not, I want to be really clear this is in fact a horrible investor strategy. Don’t play the market with no equity because if you get in a pinch, if you get in a bind if the cash flow is not there, if there’s a vacancy, you can’t really sell this and do well with it. You’re forced to stay there for a period of time. But appreciation or patient equity it is something very real. Now what I’m gonna do in this next segment is I’m gonna share with you my favorite kind of equity is what I call, Pirate Equity. Pirates. What do Pirates do? Well it’s not the best connotation right? They plunder but one of the things that they do is they’re always hunting down buried treasure. This is something I like to do. There’s a small percentage of the population at any given time that is selling a house and they’re selling it below market for some type of reason. And I believe I can find homes that don’t require a whole lot of sweat equity. Meaning for every home you find that’s a great deal because it’s a fixer-upper, I’m gonna find a deal that is not a fixer-upper. And on this situation, the fare of the day might be having a house that’s valued at $100,000 that I can purchase for sixty five thousand dollars just by, just by treasure hunting. These deals do not come around very often but the deal of the decade comes along about once a week. And what that really means is, there’s houses out there in the marketplace and you look at today’s market and there’s a lot of people saying, oh you can’t get a good deal in the marketplace and I just smile. Because if enough of the people believe that there’s not a good deal out there guess what? I just, I’m doing a commercial deal right now with seven hundred and fifty thousand dollars of equity. It was there, it was available. It was just miss listed and the owners very successful and they don’t care to sell it at its market value they just want to dump it and they want to be done with it. Alright? These deals they’re out there they can be fine and so, be a pirate. Go treasure hunting. You can watch some of my other videos where I’m going to tell you how to hunt down deals with a lot of equity. And you know what? You could even click the link below and then have my team who goes around to the best markets in the country, and we’re constantly digging up buried treasure and then teeing them up to you and making them available for you. And so those are three different types of equity ,that’s what equity is. You got your sweat equity, which means put in some labor and increase the value. Patient equity, appreciation happens with time. Pirate equity, just go find a house with a lot of pirate booty right now. Thank you for watching today’s video. I hope that equity is way clearer for you now and we also threw in some extra tidbits on what kind of equities are out there and what you can build to make sure that you create financial success for your future.