The HELOC: ATM Machine, or Wealth Builder?

Back in the early 2000’s, millions of Americans borrowed against the value of their homes and treated them like their very own ATM machine.  A HELOC, which is a Home Equity Line of Credit, is a type of loan where you are essentially borrowing from the bank, your own money or equity in your home.  For example, if your home is valued at 100,000 and your primary mortgage is only $60,000, you have $40,000 in equity – meaning if you sold the home today, you’d have $40,000 in cash once your primary loan was paid off.  Actually more like $30,000 when you take out selling costs.  So the bank will allow you to borrow these funds back out of your home, typically up to 90% of it,  since they are protected by the value of your home.    

What many people did though, was took out their HELOC and then went on a mad spending spree (big mistake), remodeling their home, buying toys, new cars, vacations, pretty much anything but investments.   When the housing market collapsed in 2008, they found out pretty quick that their HELOC was now unsecured debt – my least favorite of all types of debt.   Since their home value plummeted, they were now underwater – their primary plus HELOC loans were more then the value of their homes.

I am definitely for utilizing the equity in your home and putting it to work, however I want it to be used to accelerate the growth of my assets, not use it to buy more liabilities.

 

I suggest you open up a HELOC on your home, but not use it – until the timing is right. 

You want to have it when you don’t need it, so when you need it, you can pounce quickly.   I want you to use it for when there’s an incredible deal – when assets have plunged in value and you can buy things at steep discounts.   Or when an opportunity presents itself with so much upside and minimal risk that you HAVE to jump on it.  

For example, I have been investing into cryptocurrency for the past 90 days and doing very well.  However, as the prices have risen so quickly, it’s not given me as much of a chance to buy in at the prices I wanted to buy in at.  On the one hand I love the explosive ROI, on the other I keep saying “why’d you have to go up so fast, I wanted to buy more at these great prices when more cash flow came in”. 

My friend Adam who I’ve know for quite a few years and we’ve worked on a few  projects together, is a tech genius.  I saw him post on Facebook that he was mining crypto.  Essentially miners utilize computer hardware to solve math problems on the blockchain and for that effort they get rewarded with crypto.  If you don’t understand how it works, don’t worry, I don’t really either.   All I know is that someone I know, like, and trust who is very smart and has a technical skill that I don’t, knows how to use it to make money.

What I can bring to the table is not any knowledge, actually very far from it.   But I can bring capital.  So I asked Adam if I put up some capital, could he use it to buy more mining equipment and we could work out a fair split of the crypto rewards.  He was more than game.  He can leverage off of my capital to create an additional stream of monthly income with no risk other than his time setting it up and monitoring the system, and I can leverage off of his expertise and setup to get additional crypto at much lower costs then at current market prices.  Business and investing always has opportunities for WIN/WIN situations.  

I wasn’t planning or forecasting an investment like this so I didn’t have the funds free to be able to do it.  But I did have my HELOC, which I left a large amount open so if an opportunity DID present itself unexpectedly, I could have quick access to funds.  I drove to the bank, gave them my loan number, asked for a check, and instantly had the funds.   Now, of course I will have to pay a small monthly interest fee on those funds, but I fully expect this deal to generate a substantial more amount of monthly cashflow than the cost of the interest. That’s the proper use of a HELOC, friends.  They aren’t for jet skis, snowmobiles, boats, $75k cars, remodel projects, or any other expensive toys or liabilities. 

Use the HELOC to accelerate your wealth!