How High-Net-Worth Borrowers Are Using Equity to Expand Their Portfolio

Why High-Net-Worth Investors Leverage Equity for Growth

High-net-worth individuals (HNWIs) have a unique advantage when it comes to real estate investing: they often hold substantial equity in their properties. This equity can be a powerful tool for expanding their investment portfolios, generating passive income, and building long-term wealth. By leveraging this equity, HNWIs can unlock capital without selling their assets, gaining liquidity while retaining ownership.

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Key Strategies for Using Equity to Expand a Portfolio

1. Cash-Out Refinancing

Cash-out refinancing allows investors to replace an existing mortgage with a new, larger one, taking the difference as cash. This strategy is particularly appealing to HNWIs who want to tap into their property’s equity without selling. It’s also a tax-efficient way to access funds, as the interest on mortgage debt is typically tax-deductible. Learn more about cash-out refinancing here.

2. Home Equity Line of Credit (HELOC)

A HELOC provides flexible, revolving access to funds, allowing investors to withdraw and repay as needed. This can be particularly useful for financing down payments, renovations, or short-term investments. For those interested in leveraging equity from investment properties, finding the right HELOC lender is essential. Explore your options here.

3. DSCR Loans for High-Cash-Flow Properties

Debt Service Coverage Ratio (DSCR) loans are ideal for high-net-worth borrowers with cash-flowing rental properties. These loans focus on the property’s income rather than the borrower’s personal income, making them a perfect fit for those with substantial assets but unconventional income streams. Learn more about DSCR loans here.

4. Portfolio Expansion Through LLCs

Many high-net-worth investors prefer to acquire properties through LLCs for liability protection and tax advantages. DSCR loans are often structured for LLC borrowers, making this approach even more appealing. Investing through an LLC can streamline tax benefits, reduce personal liability, and simplify the transfer of property assets.

Benefits of Using Equity for Portfolio Growth

• Tax Efficiency: Interest on mortgage debt is often tax-deductible, reducing the overall cost of capital.
• Increased Purchasing Power: Unlocking equity can free up significant capital for new acquisitions.
• Faster Growth: Scaling a portfolio quickly becomes more feasible when using leverage.
• Diversification: Expanding across different markets and property types can reduce risk and increase returns.

Potential Risks to Consider

• Market Fluctuations: Property values can decline, reducing available equity.
• Interest Rate Risk: Rising rates can increase the cost of borrowing.
• Liquidity Challenges: Equity is not as liquid as cash, requiring careful planning for withdrawals.

FAQs

Read Next

• What is a DSCR Loan?
• Investment Property HELOC Options
• Understanding Cash-Out Refinancing

Ready to explore your financing options? Use our Loan Comparison Calculator to find the best fit for your investment strategy.

Unlock Your Home Equity with Figure

• Approval in 5 minutes. Funding in as few as 5 days
• Borrow $20K-$400K
• Consolidate debt or finance home projects
• Fastest way to turn home equity into cash
• 100% online application

Check Rates