What Is Equity In A Home

What Is Equity In A Home

Kris Krohn here with Limiltess TV and guess
what? Today we’re gonna be answering that question
that so many of you are asking, what is equity? And oh my goodness this is so important for
you to understand, you know why? When I bought my very first house it had $40,000
of equity. Guess what that means? That meant that I found a treasure chest filled
with $40,000 of booty in it and that’s equity. We’re gonna teach you what it is, how to leverage
it, how to use it, how to grow it to get you on that way and path to financial freedom. What is equity? Alright, gonna draw you a picture here that
I think you’re gonna like. This, guess what it is? It’s a house! Let me tell you something about this house. This house has a value of $100,000. But I moved into it 15 years ago and I’ve
been paying my mortgage and the principals are getting paid down and how after 15 years,
I owe $75,000 on the house. So, it has a value today of $100,000. I owe $75,000 and if this is my meter, I have
0, 25%, 50%, 75%, 100%. Take a look at this. Right now, I have a gap of what I owe is $75,000
and what it’s worth is $100,000. There’s a gap right there of $25,000, it also
has to be 25%. I’ve got a 25% equity position on this house. Now, let’s say that I live in the house longer and I receive a little inheritance. I decide that I pay my house down to $30,000. How much equity do I have? Well I owe $30,00. It’s worth $100,000 so guess what? There’s a equity position here of $70,000. Equity is the difference between what you
owe and what it’s worth. and that’s also what you use to calculate
your net worth. So for example, if all I own is this asset
and nothing else and someone said, well what are you worth? Well I don’t know, my job I make $40,000 a
year. Cool! but what are you worth? Well I’m worth $70,000 How’d you arrive at that? Well, my house is worth $100,000 I owe $30,000
on it, I have $70,000 of equity. And that also translates in my net worth. So here’s what this applies in real estate
investing that I absolutely love. Let’s say that we were treasure hunting in
the market. Because this is the way I use that term equity
in all my videos. And let’s say that I found a home that I was
able to purchase for $200,000 and let’s say that it had a value of $300,000. If I can buy it for $200,000 and it’s worth
$300,000 how much equity is there? $100,000 Ok? And, because the moment I buy it for $200,000
I’m worth that much more money. If I were to sell it in the market for $300,000,
you know other than some cost, some seller cost, there’s roughly how much money that
I would get? $100,000. So equity is not always usable until you do
something like sell the asset or I can go to my bank and say, I don’t wanna sell the
house but I wanna refinance it with a home equity line of credit. And the bank says, well we’ll give you a home
equity line up to $240,000. So check it out. I owe $200,000. It’s worth $300,000, they’ll give me a checkbook
or credit card linked to this that will allow me to go up to $240,000. So the difference between what I purchased
it for which is what I owe and this line of credit of $240,000 there’s a gap there of
$40,000. That’s $40,000 that I could use as a down
payment on another house. I could use it to buy something different. I could use it to invest with. And when I use it, I will add my payment and
I will decrease my equity. So equity is that amount that you have. And where I really utilize this is in treasure
hunting because, you know what I don’t really like to buy a house for $100,000 that’s worth
$100,000. You know why? because I didn’t walk in to
any magic money when I do that transaction. That’s how novices transact. They might be doing that because they see
the cashflow. I look for 2 primal primary basics when I
look at any deal, Number one, what is it’s equity? Number two, what is it’s cash flow? Let me give you a realistic scenario to kinda
finish up this video with to give you an idea. I just finished looking at a house that has
a value of $150,000. It’s a home that I can purchase for $120,000. How much equity is there? $30,000 You’re catching up fast. Ok good job. $30,000 is how much equity I have and this
is what percentage of $150,000 value? 20% My equity isn’t just a, cannot just be reflected
in a financial amount but also it expresses a percentage. And this is what’s really important to me
when I’m walking into a deal. Because this house and this scenario has $30,000
of equity or a 20% equity position. So when I look at a deal I wanna know how
much equity and what is it’s equity position and these are those numbers and now you are
a master at equity. Some might say, go build some equity. I’m gonna invite you to go find it cause it’s
out there and it’s available. Thank you so much for joining us today on
Limitless TV. And tomorrow, we’re gonna be talking about
how to love yourself when you don’t know how. This is something that people are out there
searching for. They want to get this answer to how do you
step really into that feeling of self love. Come in tomorrow.

15 thoughts on “What Is Equity In A Home

  1. Awsome explanation, one question, were u find the value of the house, who determine that value, probably comparing the average value of the houses close by?

  2. With the home equity line of credit of 40k added to the 200k do you have to pay that back though since it’s part of the borrowed 240k?

  3. How is it possibly know the value of a house? Why would a seller sell a house to someone for less than it's valued at?

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