A HELOC, or a home equity line of credit, is set up to have a maximum draw limit rather than just a set dollar amount in the form of a lump sum like a home equity loan. Similar to a home equity loan, a home equity line uses your home as security.

This line of credit is set up to a certain amount decided between you and your lender (generally 80% of the market value on the home in question minus any fees currently owed upon it) that can be drawn out in a set amount of time. A HELOC, in simple terms, is a recommended alternative to a home equity loan for those with ongoing projects.

So, you are in desperate need of cash, got projects to fund, mouths to feed, bills to pay, and so you decide to drop by the bank and get a loan. First option you are presented with when offering your home as collateral is whether to go with a home equity loan or a HELOC, or simply a home equity line.

In most cases a HELOC will probably be your better choice, simply because when you need the cash, you have it, and when you don’t, don’t worry about it. Sounds simple enough, and for those in need, a HELOC is a welcome alternative to many other loan choices because you won’t have a lot of money just sitting around that you have to pay interest on.

The easiest way to describe how a HELOC is a superior loan alternative is safety. With a HELOC you obtain safety in both terms of being more likely to handle your payments as well as safety from yourself. When the money isn’t just dumped into your pocket all at once you are less likely to waste it and end up in trouble.

A HELOC generally has low settlement cost rates (on a $150,000 line of credit it would be around $1000 compared to $2500-5000 for a home equity loan of the same amount). While other fees associated with a HELOC tend to be more expensive, overall a HELOC doesn’t cost that much more that a standard home equity loan.

In addition, the idea of saving you from, well, you, plays an important role as well. If you just receive all the money up front and it’s just sitting there, you are going to be tempted to spend it on things you don’t need. Obviously this situation can come back to hurt you.

However, in a HELOC, since the money isn’t just sitting in the bank but is rather drawn out when you need it, you will be less tempted to spend it and you also will not have to pay interest on money you do not use.

Disadvantages of a HELOC

The main disadvantage to a HELOC is that people are likely to try to go for long term repayment. Although the monthly payments can be held in check in long term repayments, what ends up happening is that the item purchased with the loan doesn’t last nearly as long as the repayment schedule.

In essence, you will be paying for something you no longer have. Similar to a home equity loan, a HELOC also puts you in danger of losing your home. If the payments can’t be met then serious problems arise.

A HELOC is also available to people with bad credit, and can even be used to improve credit as long as payments are made on time. Since the security is a home and the line of credit given out is usually less than the value of the home, lenders have little risk offering these types of loans to everybody.

We hope we have shed a little light on the world of home equity for you here. Hopefully after reading this article you will be better prepared on how to handle your money problems.

Just keep in mind that whenever getting a loan with something as valuable as your home as collateral to be careful, be smart, and always take the time to shop around and read the fine print.

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A lot of Americans aren’t going to have enough money to retire on. That is just a un happy reality of these times. Instead of bemoaning that reality (and the unfairness of it all) the best thing someone who hopes to have a healthy retirement can do is simply make sure they aren’t the typical American. We must take actions to assure they will have enough income to enjoy their life and pay their bills, as well as those increasing medical bills.

The best way to avoid becoming one of these Americans who end up working at some remedial job through their so-called Golden Years, according to Robert Kiyosoki, author of the “Rich Dad Poor Dad” book series, is to buy investment property.

Investing in real estate is a wonderful way for people to prepare for retirement because it supplies a great benefit called “passive income”. After someone has laid the ground work, passive income keeps coming in without a lot of effort. A laborer gets compensated only for the hours he puts in. A real estate investor, after setting up his system, gets paid for keeping it running. And keeping it running, if he been wise about it, will involve paying his team to do the job of inspecting them every now and then.

A great thing about passive income (such as from investments) is, the more time the real estate investor holds them, the more ROI they should make for her, with less and less work on the investor’s part. It’s the closest thing to the “Holy Grail” of the world of money.

It sounds attractive, but we shouldn’t just take the plunge. And even though it is completely learnable, there’s quite a bit to learn when one is thinking about buying investment property – things like comprehending P&L statements and real estate law. The biggest concept to learn, however, is one’s own limitations. The individual who understands where to find the knowledge he wants is far better off than the individual who remembers tons of facts and formulas around in her memory.

In the book “Cash Flow Quadrant,” Robert Kiyosaki advises potential investors to increase their cashflow in addition to their knowledge. He writes of developing a business system that can be set up and left alone, freeing the investor to move to the next step instead of investing all her time working in her business. The next step involves continuing the real estate education and start to look around for specialists to employ and investment properties to buy.

Robert Kiyosaki also talks about this change as transitioning from one part of the cash-flow-quadrant to the next. He emphasizes that, the 1st step someone needs to take toward transforming her life is altering the thinking process. If someone adjusts the way he/she processes the thought of money, then he/she will wind up in a better position to change his relationship with it.

The way someone thinks determines the actions they take throughout the day, and those actions determine their success. The primary benefit of reading books like Robert Kiyosaki’s “Rich Dad, Poor Dad” series – brings you closer to new ways of thinking about stuff. When investors see how easy it is to develop new skills and acquire better knowledge, they are virtually unstoppable.

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Investment In Property Can Help You Retire

I remember a lot of comments from readers and also from people I meet in person who tell me that they are just looking for a place to live and are not really looking for a real estate investment.

My default answer is “Why not treat your first home as an investment?”

In reality, once you buy a property, you become a real estate investor. Buying a home is often considered to be the biggest investment one can make so it’s best to treat it as a real investment — one which will give you reasonable returns if you do decide to turn it into a rental property or if you sell it further down the road.

What are reasonable returns?

Normally, when a person buys a house which he intends to live in, he does not consider how much rent he would earn if he decides to rent the property out, and whether the possible rental income would be more than his monthly amortization. It is not uncommon for a homeowner who moves up the corporate ladder or improves his situation to move to a better home but keep his first home for sentimental reasons.

Thus, if in the future, the homeowner decides to move to another house and converts his first house into a rental property, the rentals are often not enough to cover the monthly amortizations, thereby producing a negative cashflow situation.

Had the homeowner considered his first house as a real investment, he could have dedicated more time to finding a property that would fetch better rental rates which could cover the monthly amortizations, thus giving the owner a nice positive cashflow.

More often than not, factors that may affect market values and appreciation are not given too much attention by a home buyer as the primary goal is just to have a place to live in. When the time comes to sell the property, it is very likely that there is little or no room for significant profits.

At times, the homeowner may even have to sell at a loss. This situation could have been avoided had the home owner considered buying a property that was way below market value*.

*-”Market Value” is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.

Buying a property below market value would be in alignment with what Robert Kiyosaki often says, which is “You should make money when you buy, not when you sell”.

 Money is made in the form of equity* at the time the property is bought and the profit is realized when the property is sold. Robert Kiyosaki is the bestselling author of Rich Dad Poor Dad.

*- Equity is the difference between a property’s current appraised value or market value and the loan principal balance

The opportunity is there so don’t waste it

Everyone at one point or another will really have to buy his or her own home so why not make the most out of the opportunity? If done well, one could gain passive income in the form of positive cashflow, or a significant profit, or both. At the very least, the education one can gain from treating his first home as a real estate investment is priceless.

It is virtually risk-free

Since initially the goal of the home buyer is to have a place to live in, he would not really be concerned with holding costs associated with properties that take time to lease or sell. He/she lives in the place anyway so this makes it virtually risk-free in my opinion.

In fact, I apply the same strategy to all of the deals that I have done this year as my last fallback would be to live in the property just in case I am unable to sell or rent it quickly.

The challenge in deciding to live in one’s investment property

If one decides to live in his/her own investment property, chances are one will have the tendency to  fall in love with the property and over-improve it. I guess that’s the only risk that one should manage. Falling in love with a property can cloud one’s judgment and introduce costly improvements that one might no longer be able to recover.

If your first home is good investment, it can lead to more investment properties

If one buys his first home as an investment and not just as a place of residence, it can help ensure that more real estate investments would follow or at least it won’t prevent the homebuyer from buying more investment properties. Believe me when I say that buying a home that costs too much and is considered to be a liability can really hinder one’s ability to build enough capital to buy the next investment property. This is based on first-hand experience.

Ready to buy your first home? I wish you successful investing!

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Treat your first home as a real estate investment?

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The first step in developing an investment plan is to identify what type of an investor you are. Investor types are often determined by their stages in life. Here is a guide:

- Single person under 40 years old. Focus: Long-term investments, medium to high risk. Emphasis: capital gain, compound growth.

- Two-income married couple, no children, aged 20 to 40 years. Focus: Long-term investments, medium to high risk. Emphasis: capital gain, compound growth.

- One-income family, young children, aged 20 to 40 years. Focus: Long-term investments, low to medium risk. Emphasis: compound growth.

- Single person, aged 40 to 60 years. Focus: Medium-term investments, medium risk. Emphasis: capital gain, compound growth.

- Married couple with adolescent or independent children, aged 40 to 60 years. Focus: Medium-term investments, medium risk. Emphasis: capital gain, compound growth.

- All investors, aged 60 and over. Focus: Short to medium-term investments, low risk. Emphasis: Income.

The following are examples of investment portfolio mixes for the various types of investors.

Low Risk Investments:

Low risk investments are predominately cash, fixed interest and superannuation. This has the lowest risk of all investments but has also the lowest return – in today’s market, approximately 3% to 6% per annum. Fixed interest includes cash, cash management trusts and bonds. They return approximately 5% to 10% per annum, sometimes as high as 15% if you invest in global bonds in good markets.

Superannuation returns and risk profiles vary from institution to institution, however the best and safest usually return on average 10% per annum.

Medium Risk Investments:

Medium risk investments include property and non-speculative shares. Diversified funds, which invest in a range of asset groups, are also considered to have medium risk profiles. Average returns from these types of investments will range from 8% to 15% per annum.

I also like to include the broad spectrum of mutual funds, to be discussed later, in the range of medium risk investments. Some can return up to 25% and more depending on the fund type and managers.

High Risk Investments:

High risk investments include all speculative shares, futures and any other type of investment that is purely speculative by nature. Because with these types of investments we are betting on whether the price will go up, or sometimes down, I often classify this as a form of gambling. Accordingly, the returns are unlimited but so is the ability to lose the total money invested.

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Investor Types and Risks

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Kim describes her thoughts, decisions and fears of her first investment purchase. Listen in as she talks about the time it took to find the property and her fears of making a bad investment.