What Is Dead Equity?

Did you know that if you own a rental property, you might have lots of money just sitting there, waiting to be used? Many of our clients have more than $400,000 in equity. Some investors call this “dead equity.” But don’t worry, because we’re here to tell you all about it and how you can make it work for you! By understanding dead equity and the opportunities it presents, you can take important steps to grow your real estate wealth and make your money work harder. Let’s dive in!

What is Dead Equity?

Dead equity is a fancy term that means the money you have tied up in your rental property that isn’t doing anything productive for you. Imagine having hundreds of thousands of dollars sitting idle! That’s dead equity. It happens when the value of your rental property increases, but you haven’t taken advantage of that growth.

Opportunities You’re Missing Out On:

Cash-Out Refinance or Home Equity Loan or Line of Credit: Picture this: you can replace your current mortgage with a new, bigger loan. The extra money you get can be used to invest in real estate. You could buy another rental property putting that equity to even better use. Another possibility is using your dead equity in your personal residence or your rental property to fund the construction of an ADU. An ADU or Accessory Dwelling Unit is like a small, separate home or unit on your property that can be rented out.

By securing a home equity loan or line of credit, you can access the funds needed to build this additional unit. Once it’s complete, you’ll have a new rental space generating even more cash flow for you. It’s like having a double win – maximizing the value of your property and boosting your income.

Exploring 1031 Exchanges: Here’s a fascinating idea! With a 1031 exchange, you can sell your rental property and use the money to buy another property without paying immediate taxes on the gains. It’s like a tax-saving magic trick! By doing this, you can grow your real estate empire and keep more money in your pocket. Many investors are able to create significant value by accelerating their depreciation,  increasing their cash flow, and leveraging their equity more to control more real estate resulting in larger equity gains as real estate grows in value.  

Conclusion:

As a rental property owner, it’s essential to understand dead equity and the opportunities it presents. Don’t let your money sit idle when it can be working hard for you! By exploring options like home equity loans, cash-out refinances, or 1031 exchanges, you can unlock the hidden potential in your rental property and grow your real estate wealth. 

Call us if you’d like to learn how your real estate can be making you more money. Your rental property might just hold the key to a more prosperous future.

TrueDoor Property Management helping investors make more money with less drama.