When it comes to real estate investing there are many different strategies you can take to make money. Often the focus is on cash-flowing real estate. However, If you are buying a single-family home you might be left wondering how you can still be a real estate investor and make some incredible gains on your most expensive purchase. The following are a few strategies and tips on how you can use your SFH to prepare you for your next real estate investment.

1. Forced Appreciation
   • This is a strategy based on finding ways to make the right kind of improvements to your home that will results in a higher appraised value. This strategy might seem daunting at first because it requires construction, but with the right professionals at your side, this can be a fun and rewarding experience! The key here is “the right professionals”. Before you get started on making improvements it is worth doing some due diligence and getting to know the possible home improvement professional that you could hire.
     • You will want to see examples of projects that they have completed. Get references and read reviews from past clients.
     • Get to know the materials used and what options are available to you.
     • Understand the home improvement process for kitchen design.
     • Take a look at higher-priced homes in your market and see what their kitchens look like. Look at the materials used in the higher priced homes and try and find a similar look for a lower cost per square foot. A lot of cost savings can be had if you go into the project with a design and specific materials in mind.
   • Once you have found the “right professionals” to work with and you have completed the project. The next step is to get your home appraised. Home appraisers can come from a bank or lender, but you want to hire your own private appraiser, so you can have an independent assessment of the value of the property. Often times real estate agents will get their home appraisers license as another certified service they can provide to their clients
   • Next, you will head to your local bank or preferred lender and inquire about a Cash Out Refinance Mortgage OR a HELOC (Home Equity Line of Credit).
     • Cash Out Refinance – If you choose this route you will be refinancing your current 1st Position Mortgage to a new rate with a higher balance. For example, if your current mortgage balance is $450,000 and your home is appraised at $575,000 they will give you a mortgage for $575,000 minus $450,000 and cut you a check for $175,000 at whatever the current interest rate is on the Mortgage Market. Please note there isnt any tax on debt.
       • In the ever dropping interest rate environment that we experience from 2008 to 2021, this was a very good strategy to use. Another strategy was born during this era called the BRRR Method. Which stands for Buy Rehab Refinance Rent Repeat. Essentially you would buy a house and bring it up to market condition, Rent it to a tenant at current market rate which would cover your mortgage, taxes and insurance AND do a cash out refinance. Quite the Strategy indeed!
     • HELOC (Home Equity Line of Credit) – As my neighbor Dan likes to call it. This is basically a credit card that is backed by the equity on your house. When you get a credit card they ask you for your income and look at your credit score. Essentially, what the lender is doing is assessing your value as collateral for the credit card. They will then determine how much risk there is in lending to you and then decided on the available credit card balance AND the interest rate they will lend to you. You will be scored on your performance over time to repay your debts via your Credit Score to let other banks know how good of an asset you are for them. Remember…The Bank Always Wins!
     • Similar to you qualifying for your credit card the bank will also lend to you based on the equity in your home AND your income/credit score. With a Home Equity Line of Credit, a bank will take a 2nd Position loan on your home that is backed by the UnMortgaged or Appreciated value of your home. Since you have made some improvements that improved the value of your home above the value of the mortgage you have equity or value in your home that is just sitting there going unused. This is a 2nd position loan which means that it will get paid 2nd if you go bankrupt or decide to default on your debt obligations. For this reason, Lenders will charge you a higher interest rate than a mortgage to take out this loan. Most times this will also be a variable-rate loan that changes based on the current interest rates on the market. Some lenders/banks do offer the opportunity to lock and unlock your interest rate. One of the great benefits of HELOC is that, just like a credit card, you can pay it down and still have the credit limit there after you have paid off the debt. For example, with the $175,000 from our above example instead of getting one check in cash at closing. You can get a credit limit of $175,000 that you can use over and over again as long as you pay it down over time. This can be particularly helpful when starting a business or you are buying another cash-flowing asset. The real move here is to be able to buy a cash flowing asset that is able to pay off the HELOC WITH the money that you borrowed from your HELOC! You can even go to the bank and draw cash from the bank from your HELOC. It really is a very helpful tool and remember you don’t pay taxes on debt!
2. Rent out a room/storage
   • If construction on your home isn’t an option right now OR you don’t have the cash to make it happen. Another strategy could be short-term rentals. It seems now a day there is a short-term rental market for everything. The most common is something like Airbnb/VRBO vacation rentals. If you live alone OR have a big enough home or mother-in-law suite this could be a viable option for making more cash from your home.
   • Have an empty garage or big room with exterior access available. You might want to consider offering this space as a storage rental. It could be your neighbor down that street that doesn’t want to make the long trek to the nearest storage unit facility that is willing to pay you $500 per month just to store some extra things.
3. Home Office
   • Do you work from home? It seems like this trend has caught on alot lately which is great for employees these days, but did you know that this home office can save you big when it comes to tax time!
   • Im not a CPA, but my CPA tells me that a portion of my property taxes can be written off based on the percantage of your home that is used for your home office OR even for your business. This also applies to your utility bills. IF your office space takes up 25% of your home square footage you could write off up to 25% of these expenses. Check out this article (Insert Professional Article) to learn more and check with your CPA today to get a clearly understanding!

As you can see in todays economy there are more and more opportunities to use your home to generate additional income and help you be on your way to becoming a real estate investor!