The idea of leveraging trapped equity or why you should do it may not make sense to you at first. That’s okay because most people don’t get it either.
However, learning how to leverage trapped equity can elevate your ability to make the most of your real estate investments.
This is a broad overview of it and what it could do for you.
Trapped equity — sometimes numbers lie
I am known to say that numbers numbers don’t lie, people do.
Trapped equity doesn’t actually make figures false when evaluating your assets, but they do give a skewed view of what’s happening.
How does this happen? The simple answer is appreciation.
When you buy a multifamily asset, you put a certain amount of money for it — its market value at the time — and you put a certain amount of money down. Once all the ink dries on the paperwork, you got a good percentage of cash flow from there.
Then something happens over time. You increase the rent per unit on this asset and the value of the property goes up. Now, it appears that the percentage of cash flow has gone up as well.
That is NOT the case.
You still have the same amount of debt on this asset. Therefore, you have trapped equity that seems to sitting there doing nothing. Take that from the appreciation and you’ll find your cash flow is the same.
So, what can you do with the dead money in this deal?
Use it or lose it
Now, this is how you can leverage trapped equity and change how you invest in real estate. There are actual organizations that will buy your trapped equity from you at a very low rate.
Suddenly, this cash is no longer trapped in your deal and you can use it. When I make this move, I use it to buy more real estate.
Because even with the cost of releasing the equity and the cost of new debt, the type of deals I do still cash flow.
To learn more about how I find, buy, and fund great real estate deals, register now for my free Real Estate Training.