At January Financial, our main goal is to help our clients to become financial free by using their mortgage as a tool and putting their equity to work for them. We fully believe in the principles of equity management and have created strategic partnerships so that not only can we help you harvest your equity, we’ve got trusted partners who will work with you to make sure that your equity is working hard and giving you the maximum benefit.

Since equity management is somewhat counter-intuitive and turns conventional thinking on its head, I’d like to give you a “nutshell” version of what we do and why we believe it makes sense. I’ll also share a story of a current client who has been able to liberate his equity and is on track to dramatically increase his net worth over the next few years.

The basic idea behind equity management is that equity trapped in your home is not a good investment. Although it makes us feel safe and we’ve always been taught that we should pay our houses off and get rid of our mortgage, leaving equity in our homes is not a good way to build wealth and can even increase your risks! When looking at investments, we generally run it through the Three Question Test – how safe is it, how liquid is it, and what’s the rate of return? For example, a typical mutual fund would be considered safe and liquid and generally has a decent rate of return.

Home equity, on the other hand, does not pass ANY of the questions in the Three Question Test! How safe is it? Consider what would happen if there were an earthquake where you live? Your home equity would be almost completely wiped out and it could take 15-20 years before you get it back. How liquid is it? Consider that the only two ways for you to tap into the equity in your home are to sell it or refinance. Finally, what’s the rate of return? Many people think that their equity grows as the house appreciates, but the reality is that your house appreciates regardless of the size of your mortgage. The home is the appreciating asset, not the equity.

I’m currently working with a client who used to believe in the “Old Way” – getting a 15-year fixed mortgage, paying extra each month and trying to pay the house off as soon as possible. After going through our presentation on equity management and some of the options we have available to put the equity to work, he decided to refinance to pull out as much equity as possible. The best part was, by using innovative mortgage products that are also in line with equity management concepts we were able to take out over $650,000 in equity and his payment will only increase by $400 per month!

This brings up another key to equity management, which is that the equity that we harvest must be invested and put to work, NOT consumed. If our client goes out and buys a new car and some fancy new furniture, he is not using his equity wisely and will put his family in a much worse position than when they started. Instead, we have referred him to an experienced financial planner as well as introduced him to an investment real estate group that will not only educate him on real estate investing (with our help of course), but they will provide properties on a silver platter.

We also believe in fiscal discipline and conservative financial planning. We recommended that our client put away a year’s worth of payments and income into a safe side account, in this case a CD. We suggested he keep a significant portion with a financial planner to stay diversified and hedge his returns. Finally, we will take the lion’s share of his cash out and help him to invest in conservative, stable, income-producing real estate. By using the magic of leverage and investing right, he will be able to increase his net worth by $1 million dollars in just the next 2 years!

If you’re interested in finding out more about equity management and how we advise our clients so that they can get the maximum benefit from their home and drastically increase their net worth, give us a call or send us an email! We look forward to helping you become financially free.