How to Use Home Equity to Build Wealth | Truehold (2024)

Building wealth requires a certain mindset and select financial tools. In sum, you need to make your money work for you. One way to do this is to maximize home equity—the portion of your home that you own outright and that’s available for you to use as you choose.

You can convert equity to cash through either a sale or a loan, which can then be used in multiple ways, including investments in stocks, bonds, real estate, and business opportunities.

By converting equity to opportunity, you can grow your total assets and sources of income. Let’s take a closer look at how to use home equity to build wealth based on your goals and resources.

How Can I Take Advantage of My Home Equity?

Home equity can be a powerful tool for financial planning, but it’s important to understand how it works before trying out this strategy.

Equity is the portion of a home's value that the homeowner actually owns. The basic calculation works by taking the current market value of your home and subtracting the total you still owe on it to lenders or lien-holders. The amount left is your home equity, which you can either receive when you sell your property or access by using it as collateral in some type of secured loan, such as a home equity loan.

So, how can you best leverage your home equity to achieve financial freedom?

#1 Start or Grow a Business

Whether you’re ready to ditch white-collar life and buy a franchise, fund a start-up, or take advantage of home-based tax write-offs with a new side hustle, you can use your home’s equity to fund it. If you’re just starting to explore the idea, keep in mind that some types of businesses take years to bring in a profit.

Be sure to protect your assets with:

  • A business structure that doesn’t put your personal home at risk
  • The right mix of business and liability insurance
  • Conservative income projections that ensure you can pay off property-secured debt

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#2 Use Your Equity to Build More Equity

A common reason borrowers have for taking out home equity loans is to fund property improvements and upgrades. In general, building up equity in your home is based on:

  1. Making monthly mortgage payments
  2. Growth in home value over time
  3. Making repairs and maintaining the state of your buildings and land

The fourth and optional way to grow equity is to enhance your property with remodels and additions. Remodeling doesn’t usually provide a 100% return on its cost, but if you invest in upgrades that both enhance your current enjoyment of the property and add value to it, you’ll be building security and future wealth.

Consider these popular remodels, and how much you can expect to recoup from them based on national averages:

  • Garage door replacement: Cost $4,041 | Value $3,769 (93.3%)1
  • Manufactured stone veneer: Cost $11,066 | Value $10,109 (91.4%)
  • Minor kitchen remodel using midrange materials: Cost $28,279 | Value $20,125 (71.2%)

You may also be able to deduct home equity loan interest from your federal income taxes if the loan proceeds are used to "buy, build or substantially improve the taxpayer's home that secures the loan,” according to the IRS.2

#3 Invest in Real Estate

Many homeowners find themselves asking, "Is it a good idea to invest in home equity?" The equity you've built in your home can be a powerful tool to further your financial growth. Capitalizing on the gains you've seen from your initial homeownership can be a strategic move, especially if you’re looking to invest in other property types, such as:

  • Rental property
  • Property to fix up and flip for a profit
  • Commercial investment property

While you’ve missed the 2020–2021 drop in interest rates, 30-year fixed mortgage rates continue to be a profit-generator for the long haul, especially if you own a rental property that produces enough revenue to provide you with monthly income.3

#4 Add a Rental Unit to Your Property

Let’s do a mash-up of #2 and #3 above—have you considered designating or building space you can rent out on your land? This could include:

  • An apartment with separate entry in a basem*nt, attic, or over a garage
  • Storage or working space in a garage or shed
  • Studio or office space

A contained living space on the same lot as a detached single-family home is also called an accessory dwelling unit (ADU). If you already have a structure or the space to convert—and are willing to deal with renters—you may be able to boost your equity immediately by more than the construction cost.

For instance, a garage conversion ADU costs $100,000–$150,000 to make tenant-ready, while adding the ADU increases property value by $158,000 on average.4

#5 Pay Off Debt

One method of wealth creation is to reduce, eliminate, and then avoid high-interest debt. If you’re making monthly payments (or should be) on debts that charge a higher interest than an equity-based loan, you may save in the long run by using equity to pay them off.

These may include:

  • Credit card debt
  • Car loans
  • Private student loans

You could take out a home equity loan with a lower APR and minimal fees to pay off outstanding loans, effectively consolidating your debt under a single loan secured by your property.

Consider reaching out to a non-profit credit counseling organization for free information or guidance prior to seeking secured loans to pay off credit card debt—they can advise you on managing your money, debts, and a budget, as well as your consumer rights related to debt consolidation and collection.5

#6 Invest in Stocks or Bonds

Part of understanding how to convert equity to wealth is comparing interest rates, just like the example of high-interest debt above. It may seem counterproductive to take out a loan that you pay interest on just to turn around and buy products that essentially pay interest back to you. But based on differing rates, borrowing to invest can be lucrative with the right expertise.

Depending on the range of time you look at and whether you index for inflation, the average annual U.S. stock market return is between 7% and 14%, although 10% is a rule of thumb that many financial planners use.6 Bonds tend to provide less return but at less risk, with fixed-rate interest income.7

As of mid-October 2022, the average interest rate for home equity loans is 7.29% and for HELOCs is 7.3%.8 There is profit potential of that window between 7.29% interest on your loan and 10% return on the stock market. But is this a wise move?

Be sure to consider:

  • Can you afford to make monthly repayments if there’s a drop in investment returns?
  • What level of risk of foreclosure would you face if investments don’t pay off?
  • Fees involved in both the loan vehicle and the investing process
  • How long a period you’ll have to potentially earn back a market drop

If borrowing against equity to invest is something you’re considering, work with a financial planner and consider your level of both risk and knowledge. Some recommend that you:

  • Invest in stocks significantly when you have a 30-year or longer horizon9
  • Use age 50 as a cut-off for creating debt instead of equity
  • Avoid borrowing as you approach retirement age

#7 Finance an Education

When you consider that you can take 2,500+ online courses sourced from the world's top universities on edX, the platform founded by Harvard and MIT to democratize learning, there’s never been a better time to skip the debt of a college degree and seek out knowledge directly.10

But if you do your homework, you can find educational paths to significantly increase your current income. Be sure to research:

  • The value of certifications in addition to degrees
  • Bureau of Labor Statistics: projected growth and other data by job role
  • Average salaries by job role, degree or certification, experience and more

Understanding the Risks of Traditional Home Equity Access

When considering leveraging your home's equity, you must be aware of the conventional pitfalls associated with traditional methods. Many homeowners opt for home equity loans, but they often overlook the inherent risk of using their homes as collateral. A few missed payments can swiftly lead to the daunting threat of foreclosure. Additionally, if you're contemplating a Home Equity Line of Credit (HELOC), remember that these often come with variable interest rates. Such fluctuating rates can unexpectedly increase, burdening you with higher monthly payments and potentially deepening your debt. But what if there was a safer, more straightforward way to access your equity without these risks? Enter Truehold's innovative solution.

Thinking it's the right time to sell,
but not ready to leave?

Try Truehold's sale-leaseback.

Click here

Unlock All of Your Equity Without Leaving Your Home

If you’re ready to convert equity to cash but want to continue living in your family home, Truehold's Sale-Leaseback option may be right for you. Instead of moving, you can sell your home to us at a competitive price and then lease it back for as long as you want.

Whether you’re looking to build or preserve wealth, cashing out home equity can provide funds for business opportunities, to fuel income-generating trusts, or eliminate debt left to heirs.

You may also be able to reduce monthly housing costs. As a renter, you won’t be responsible for homeowners liability insurance, property tax, or major repairs and covered maintenance—those are all covered by Truehold.

Ready to learn more? Give us a call and one of our advisors will reach out to review your finances, goals, and credit score to determine if Truehold is the right option for you to access your equity without leaving your home.And as you navigate this decision, make use of our home equity loan calculator to get an estimate of the equity you might access.


1. Remodeling. 2022 Cost vs. Value Report.

2. IRS. Interest on Home Equity Loans Often Still Deductible Under New Law.

3. FRED. 30-Year Fixed Rate Mortgage Average in the United States.

4. Homestead. ADUs: The Best Investment You Can Make in 2022.

5. Consumer Financial Protection Bureau (CFPB). What is credit counseling?

6. Titan. What Is the Average Historical Stock Market Return?

7. The Balance. Why Do Bond Prices Go Down When Interest Rates Rise?

8. Bankrate. Current home equity interest rates.

9. CNBC. Investing with borrowed money can be a big win — for some.

Business Insider. 38 free Harvard courses you can take online right now.

How to Use Home Equity to Build Wealth | Truehold (2024)


What is the smartest way to use home equity? ›

By opting for a home equity loan — or even a cash-out refinance — you can pay off high-interest debts such as credit cards or personal loans. This not only simplifies your monthly payments but also potentially saves you money in interest over the long term.

How can I use equity in my house to make money? ›

You have numerous options for growing your wealth with a home equity loan, and some of the better ones include:
  1. Make home improvements. ...
  2. Use it for debt consolidation. ...
  3. Finance real estate investments. ...
  4. Put it toward education and skills development. ...
  5. Start or expand a business. ...
  6. Investment portfolio diversification.
Oct 25, 2023

How can I use my home to build wealth? ›

If you want to use your home's equity to help build generational wealth, here are a few strategies you may want to consider:
  1. Use your equity for investments. ...
  2. Pay for furthering your education. ...
  3. Focus on debt consolidation. ...
  4. Make home improvements.
  5. Fund real estate investments. ...
  6. Build an emergency fund.
Jan 4, 2024

How do you create wealth equity? ›

  1. Earn Money.
  2. Set Goals and Develop a Plan.
  3. Save Money.
  4. Invest.
  5. Protect Your Assets.
  6. Minimize the Impact of Taxes.
  7. Manage Debt and Build Your Credit.

What is the disadvantage of using home equity? ›

Home Equity Loan Disadvantages

Higher Interest Rate Than a HELOC: Home equity loans tend to have a higher interest rate than home equity lines of credit, so you may pay more interest over the life of the loan. Your Home Will Be Used As Collateral: Failure to make on-time monthly payments will hurt your credit score.

What should you not use a home equity loan for? ›

Don't: Use it to Pay for Vacations, Basic Expenses, or Luxury Items. You have worked hard to create the equity you have in your home. Avoid using it on anything that doesn't help improve your financial position in the long run.

Can I pull equity out of my house without refinancing? ›

Yes, you can take equity out of your home without refinancing your current mortgage by using a home equity loan or a home equity line of credit (HELOC). Both options allow you to borrow against the equity in your home, but they work a bit differently.

What is the average rate of return on a home equity? ›

Residential properties generate an average annual return of 10.6%, while commercial properties average 9.5% and REITs 11.8%.

What is a good equity to have in a house? ›

If a homeowner is “equity rich,” it means they have at least 50% equity in their home—or they owe less than half their home's value on their mortgage. Being equity rich is a great position to be in because building home equity is a key way homeowners can grow wealth over time.

What is the quickest way to build wealth? ›

One of the key ways to build wealth fast -- and over the long term -- is to earn passive income. And one of the best ways to generate passive income is to own one (or several) rental properties.

How to build wealth with $1,000? ›

Put it in an IRA

If you're wondering how to invest $1,000, putting your money in a retirement account offers one of the highest potential returns. You can opt for a workplace retirement account or open an IRA on your own with an online broker.

How do I start building wealth from nothing? ›

Build Wealth from NOTHING in 12 Steps!
  1. 1) Set Clear Financial Goals. ...
  2. 2) Save and Live Below My Means. ...
  3. 3) Create a Budget. ...
  4. 4) Automate My Finances. ...
  5. 5) Increase My Income. ...
  6. 6) Pay Off High-Interest Debt. ...
  7. 7) Build an Emergency Fund. ...
  8. 8) Save for Retirement.
Jan 16, 2024

How much equity is considered rich? ›

According to Schwab's 2023 Modern Wealth Survey, its seventh annual, Americans said it takes an average net worth of $2.2 million to qualify a person as being wealthy. (Net worth is the sum of your assets minus your liabilities.)

How to become wealthy in 5 years? ›

Here are seven proven steps to get you wealthy in five years:
  1. Build your financial literacy skills. ...
  2. Take control of your finances. ...
  3. Get in the wealthy mindset. ...
  4. Create a budget and live within your means. ...
  5. Step 5: Save to invest. ...
  6. Create multiple income sources. ...
  7. Surround yourself with other wealthy people.
Mar 21, 2024

How do rich people build wealth? ›

8 Steps to Help You Build Wealth
  1. Start by making a plan.
  2. Make a budget and stick to it.
  3. Build your emergency fund.
  4. Automate your financial life.
  5. Manage your debt.
  6. Max out your retirement savings.
  7. Stay diversified.
  8. Up your earnings.
Jul 18, 2023

What is the cheapest way to get equity out of your house? ›

A home equity line of credit, or HELOC, is typically the most inexpensive way to tap into your home's equity.

Is it smart to tap into home equity? ›

The Bottom Line

Your home equity is a significant asset and tapping into it opens doors to ample funds, potentially lower interest rates and opportunities for home improvements, debt consolidation or fulfilling other financial objectives.

In which scenario do most homeowners use the equity in their home? ›

Like other assets, you may be able to use the equity you have established in your home to obtain liquid funds. Some homeowners use funds from their home's equity to perform renovations; others do so to pay for their children's college tuition, pay off debt or pay for other life purchases.

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