Maybe you have heard this before: your house is not an investment.
The purchase of your primary residence is a huge financial decision, but, it is still considered to be a liability and not an asset.
The reason for this is because every single month you are paying expenses down on the house, and it's coming out of pocket. Your house is not paying you, it’s draining money from you every month. Therefore, it is considered to be a liability.
You should view your primary residence as a place that gives you and your family shelter, as opposed to something that's an investment.
However, there are some benefits of owning your own property, and one is that you have forced savings.
Every single month when you're paying down your mortgage, part of that payment is going towards the principle on your mortgage, which is increasing your equity. And, if you're in the property over the long term, you'll be able to benefit from any appreciation that occurs.
This equity build up over a long period of time is actually something called dormant equity.
Picture your money being locked, and trapped in your home, and not being able to be out in the marketplace working for you, and bringing in more money.
The traditional notion is that you should pay down your house, and pay off your mortgage, and then start looking at investing.
I want to flip that on its head and have you consider the fact that maybe it's better to use the equity that is just sitting dormant and trapped in your home, releasing it, and putting it out into the marketplace so that it can work hard for you, and bring in more money.
Doing this will get you to financial freedom much faster than you ever thought possible.
I have to give credit to the book, The Real Estate Retirement Plan by Calum Ross. Where he talks about the fact that in Canada, anyone who has owned a home over the past 10 years, has actually earned themselves the name “The Mass Affluent”, because they are sitting on so much equity in their homes due to that fact that real estate has appreciated so much during that time.
Now, I know this goes against the traditional notion of paying down your home as quickly as possible, but consider the fact that this could be a really powerful investment strategy that you can use to unlock the equity in your home, and use it to purchase other investments.
I do understand that a lot of people are very risk averse, and they've grown up with the notion that they need to pay off their mortgage. If using the equity in your home isn’t for you, that's fine. But, I want to give you a different perspective, and how you can use strategies like this that are at your disposal.
Your home is not paying you money, and especially if you're never planning to sell your home, and you're planning to stay there in the long term. That money is just going to stay trapped in your home, and never really have the chance to work for you.
I just wonder, if you consider yourself to be extremely risk averse, could it possibly be even riskier not to use a strategy like this?
If you are in a position where you are only focused on paying off your mortgage, what is the opportunity cost of not having that money out in the marketplace working for you?
Could it be even riskier that you don't do something like this, than for you to do it?
I'm not talking about over leveraging yourself, and taking out so much money that you are putting yourself and your home at risk.
I'm talking about using a very strategic plan, based on your risk tolerance to extract the equity from your home, and put it towards other investments.
If you do want to explore this option further, I HIGHLY recommend that you find the right financial planner who is well versed in leverage strategies to help you navigate through this process.
You have to take into consideration where you are in the investing cycle, what your risk tolerance is and what your investing strategy should be with this unlocked equity.
Have you ever used the equity in your own home to invest in other properties, or other investments? Or, are you someone that just truly believes that the safest thing, and the smartest thing you can do is to pay off your mortgage and be completely debt free? I'd love to hear from you!