Six Things Owners Are Doing with Extra Equity

Full Video Transcript Below

[00:00:00] Well, good morning. Real estate fans, Alice Lema here, broker John L. Scott, with another edition of our weekly podcast. Very excited to tell you today, six things homeowners are doing with the extra $50,000 to a hundred thousand dollars equity that they find themselves with. It is just like a money falling into your account. Right. It's just crazy. So since the COVID and here in Southern Oregon, also since the fires, we had both kind of drive our prices up suddenly not only suddenly, but unexpectedly. And so now, now we're starting to watch trends form, and I've got six things I want to share with you that people are doing with their money.

[00:00:43] From the completely obvious and yes, we would, we would guess that to the jaw-dropping flabbergasting, you're never going to believe it. Okay. So before we get to that, I want to give you a chance to subscribe to the channel, to like it, to send it to your friends. When I have some comments, some questions seems like people are starting to use these ideas and getting some good results. Cause we're hearing back during the week, which is super, super exciting. Okay. Thank you for that.

[00:01:12] Now, getting back to our podcast, six things homeowners are doing with their extra 50 grand to a hundred grand. So, first of all, when we're talking about equity, let's talk about what equity is. Equity is the amount of money your your property is worth minus what you owe on the loan. So if you bought something two years ago, for $300,000, and now it's worth $400,000, the money you owe on the property doesn't change, but what you would get on the open market today is what changed. And for some people it changed a lot, a lot of zeros.

[00:01:51] Okay. But that's what equity is the difference between what the house, the property is worth versus what you owe on it. That's profit. Profit equity is profit. Okay. So the most obvious thing, number one, refinance, people are refinancing. They're taking off their mortgage insurance because you know what, if you did not put 20% down, which most of us don't, even if we have that much cash, we do not want to use it for that.

[00:02:18] So the lenders will put, what's called mortgage insurance on top of your loan and they take it out of your payment every month. So once the property is worth 20% or more than when you did your down payment, and that 20% can come from a combination of the prices went up or you made that many payments one or the other, or both.

[00:02:38] So then all of a sudden you have this at least 20% equity position and the lender will allow you on a conventional loan, will allow you to refinance and take that mortgage insurance off because you're no longer such a risky character. Anyway FHA loans, you cannot take the mortgage insurance off ever, but you could refinance into a conventional loan. Okay. So that's probably something you should think about doing while the rates are low. So the first thing people do, obviously when they find themselves with a lot of equity, with a lot of profit in their real estate is a refinance.

[00:03:16] The second thing people seem to think about doing is buying another property. This could be a second home, a vacation home, an investment property, a multifamily, something like that, but they buy an additional piece of real estate. They can take the money out of the property they have now. A refinance activity as well. So not only can you use your refi to take your mortgage insurance off, you can take a little bit of cash, a lot of cash out and use it to invest or buy something else.

[00:03:48] A note to self, we don't want to like spend too much money on things that do not make us money. We do not want to spend a bunch of money out of the the hard-earned equity, profit we have in our property and via a bunch of stuff, that's just going to cost us money. That's just my opinion. Okay. And you know how opinionated I am. If you're going to take money out of your property, I'd like to see you do it and put it somewhere where it's gonna make you more. Okay. Or give you more security.

[00:04:15] All right number three. The third thing people are doing is they're taking this profit. They're selling the asset or through a refinance, taking this profit and going to a completely different location, either out of the area because they can, because they can work remotely. Or they're taking, they're selling the asset and taking that profit and buying a bigger, more expensive property here in Southern Oregon. And I tell you, I've got some millennials, some older millennials, 35, 40 year olds that have a hundred thousand dollars in equity, just like out of the blue and they're buying real property or they're getting a bigger house.

[00:04:56] It's just so fun. Cause they're such hard workers, these kids that I know, and I'm just super proud of them and happy for them. Nice to see that happen. So that is the third thing people do is they move to either sell the asset and move out of the area and get something somewhere else because they can cause they have profit .Or they'll put it as a big down payment onto something bigger and more expensive here in Southern Oregon, but they'll still have a relatively low monthly payment because their down payment is so gargantuan.

[00:05:28] All right, number four. They pay off debt. And again, this is a refinance activity or they'll sell the asset, but mostly they're taking money out and then paying off some of their debt or paying off somebody else's debt. So I've seen again Older millennials, brother, sister paying off each others school notes. What do you call that student loans? I've see some of the elder people taking money out and helping one of their grandkids get through college or have an operation and vice versa.

[00:06:01] You know, there's some gen X-ers I think qualify for that. They can take that profit and help somebody else. They're paying off debt for themselves or someone else. And that's, that's really a beautiful thing.

[00:06:14] So here's number five. And I think your eyeballs will pop. People are retiring early. All of a sudden they're running their numbers and if they sell their house, They don't have to work for three more years or they don't have to work for five more years or they can sell their house and move to some lower cost place and not have to work anymore.

[00:06:33] So people are retiring early. And I'm wondering how much that's affecting our labor shortage. Because I didn't, I didn't think about that. So, but I'm starting to hear people, you know, they're, they're making this life change so that they can stop working and retire early. So yay for them. That's exciting. But that caught me by surprise. It made my eyeballs pop open.

[00:06:56] Okay. Here's number six. Are you ready? They're quitting their jobs altogether. Yeah, people are quitting their jobs altogether. Again, maybe affecting the labor force. I don't know. And so if you're a single person, I've seen several people do this, where they have enough equity and they can live so small that they, they sell all their stuff. They sell their house and, you know, they buy a van and go on their own or they go like somewhere else in the world and make their money stretch like a huge rubber ran.

[00:07:32] So we have single people quitting their jobs, they're their own source of income, and they quit their jobs. We also have couples where one of them is not going back to work because they can sell their assets, move into a smaller place and yeah, and, and live small. And then one of them doesn't have to work and they can either go back to school and start a business, caretake, you know, we've got people using this money to help their elders there. They can afford to quit their jobs and be a caretaker for their elders or their own children or somebody else in the family.

[00:08:02] So, but that was a jaw dropper to me, number six, quitting the job altogether. So that's what humans are doing with their extra 50 to a hundred thousand dollars equity. And nationally, I believe the number is $56,000 per home in the United States. And we've got a map we're going to pop up for you again, this is one of my favorite websites, KCM keeping current matters, and it shows by state how much equity each homeowner got on average. But then if you run all those numbers now, 56,000 per homeowner. Jaw-dropping isn't it. Wow.

[00:08:41] Well, real estate fans. That's why we like real estate. Cause sometimes we get lucky that way. I'm Alice Lema, broker John L. Scott here in beautiful Southern Oregon. Wishing you happy, happy holidays. Enjoy the rest of the weekend with your friends, families and loved ones.

[00:08:55] Or if you get to be by yourself, enjoy that too. Give me a call. Give me a text I'm around after the holiday. 541-301-7980. Would love, love, love to be your listing agent, buyer's agent, help your grandkids get their first house. Help your grandma, your grandpa downsized. Get you some investment property, whatever you need, you just give me a call, give me a text and we'll work it out. Have a beautiful weekend folks. See you next time. Bye now.