I’ll be writing in more detail about this in an upcoming Edge Newsletter, so I’ll keep it short here. But have you ever thought about the fact that even your wealthiest client, those who may have just spent millions on a home, are very likely cash poor?
That’s right, you don’t get rich by keeping cash in the bank. Rather, you have investments and turning them into cash often involves paying capital gains tax. Even the same-as-cash assets wealthy people do have are probably tied up in Treasury bills and money market accounts.
But what they just might be comfortable with is a little more debt. They just love financial transactions, yet may not have ever thought about taking out a home equity line of credit, or HELOC.
Maybe you should become their financial advisor and say, “By the way, if you want to complete this entire renovation right now, and do it right, there’s a way you can do that at a very low interest rate…”
HELOCs do have low interest rates, with introductory rates often as low as 3.5%, at least for the first year, and 5-6% for their lifetime, subject to increases in the prime rate which is hardly likely in the short term. HELOCs allow for a 10-year draw period with either an interest only or principal and interest repayment schedule. After ten years, most of them convert to a 20-year payback (with no more withdrawals) that acts just like a second mortgage payment.
In many states, homeowners can borrow up to 90% of their equity. (It’s 80% in my home state of Texas.) The process can take 30 days and requires all of the same documentation as the original mortgage including tax returns, credit scores, title, insurance, etc.
But once approved, HELOCs are remarkably flexible instruments. The money doesn’t have to be used on your home at all. You can go gamble it away on one wild night in Las Vegas if you want. There’s no approval and no documentation required.
In fact, I’m about to get a HELOC just because I can! There’s no other way I can get remotely such generous terms (interest rate and payback) so I may just use some for business! Or, I may buy a new/old classic car. Or maybe I just like having a 10-year rainy day fund that costs me nothing unless I use it. It’s entirely up to me.
Or maybe I just like having a 10-year rainy day fund that costs me nothing unless I use it.
Okay, enough about me; let’s talk about you and your clients. Imagine unlocking the equity in all of those expensive homes and then imagine them giving it all to you! Yeah, you just might want to climb the learning curve on HELOCs in your state!
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