Turn Your Home Equity Into Opportunity: ADUs, Investments & More
As a homeowner, one of the most powerful financial tools you have is your home equity—the portion of your home that you truly own after subtracting any remaining mortgage balance. Over time, as your home value rises and you pay down your mortgage, that equity grows. But did you know you can actually use that equity to your advantage?
Let’s break down what home equity is, how to track it, and smart ways to leverage it, including building an ADU or DADU, funding a rental property, or renovating your space.
What Is Home Equity?
Home equity is the difference between your home’s current market value and what you owe on your mortgage. For example, if your home is worth $1 million and you owe $600,000, your equity is $400,000.
This equity is part of your net worth and it can be a powerful source of capital when used wisely.
How to Track Your Home Equity
If you’re a homeowner, do you track the current equity you have in your home? If you answered no, don’t worry, you’re not alone. Many homeowners actually don’t do this on a regular basis, but I always suggest to my clients to try to track this on at least an annual basis. You can do this through a manual spreadsheet with the data from your mortgage lender’s portal and using home free home valuation websites, but just be cautious about the Redfin or Zillow estimates as they are not always the most accurate.
To help provide accurate home value estimates and track your equity in one place we have access to an exclusive, powerful, tool called Homebot which we can set you up with for free. Homebot helps you:
See your home’s current estimated value
Track your equity growth month over month
Explore potential loan options based on your equity
Discover how much you could save by refinancing or renting your home
👉 Sign up for monthly Homebot updates and start tracking your equity here
HELOC vs. Home Equity Loan: What’s the Difference?
As your equity grows to a sizeable amount over the years, this equity can be a powerful source of funding that homeowners can leverage. Two common ways to tap into your home equity are through a HELOC or a Home Equity Loan. While both give you access to funds based on your equity, there are key differences:
🔄 HELOC (Home Equity Line of Credit):
Works like a credit card with a revolving balance
You can borrow what you need, when you need it - you don’t start paying interest until you use it
Typically has a variable interest rate
Great for ongoing expenses or projects with flexible costs (like a multi-phase renovation)
💰 Home Equity Loan:
A lump sum payment upfront
Fixed interest rate and fixed monthly payments
Best for one-time expenses, like funding an ADU or consolidating high-interest debt
Not sure which is right for you? Reach out and we’ll connect you with a trusted lending partner who can walk you through your options.
Ways to Leverage Your Equity to Build Wealth
Use Your Equity to Build an ADU or DADU
If you’ve been dreaming of adding a rental unit, guest suite, or multigenerational living space, building an ADU (Accessory Dwelling Unit) or DADU (Detached Accessory Dwelling Unit) might be the perfect move.
Good news if you’re in Seattle: The city has recently made it easier than ever to build these structures with zoning updates and permitting improvements.
You can even check what's possible on your property by using Seattle’s free tool:
👉 ADU Universe: Seattle Feasibility Lookup Tool
Just type in your address (or an address you're considering buying), and it will show you what’s feasible to build. Building these types of structures can add value to your property if you decide to sell in the future, but keep in mind that the costs are usually quite high so it may take several years to achieve a true ROI. One option to begin seeing an immediate return on your investment is to rent it out for additional monthly income.
Invest in a Second Property
Using a HELOC or home equity loan, many homeowners are unlocking the ability to purchase a revenue-generating property, such as a long-term rental or a short-term Airbnb. These loans can often provide the down payment (or even fund the entire purchase) for a second home without needing to dip into your savings or liquidate investments.
A rental property can serve as a steady source of monthly income. That extra revenue can help cover other aspects of your financial life, like a new car, student loan payments, or even funding a child’s education. And in many cases, real estate investments come with tax advantages that can strengthen your long-term wealth strategy. We always advise you to discuss these opportunities with your tax professional to understand how it could impact your individual situation.
Make Upgrades to Your Current Home
Another smart way to use your equity? Invest it right back into your own home. Strategic upgrades can increase your home’s value and appeal to buyers when you decide to sell in the future. In fact, some renovations can even offer a return on investment of over 100%.
Here are a few updates that consistently add value and attract today’s buyers:
Adding another bedroom or bathroom — increases livable space and boosts resale price
Kitchen remodels — updated cabinetry, countertops, and appliances make a big impression
Quality flooring — hardwood, engineered wood, or LVP make the whole home feel fresh
Finishing a basement — adds square footage and new functionality (think: office, mother-in-law suite, or home gym)
Not sure which upgrades make the most sense for your home? We can help you determine what will deliver the biggest bang for your buck in today’s market.
Other Ways to Leverage Your Equity:
Pay off high-interest debt
Fund college tuition or career training
Final Thoughts
Your home isn’t just a place to live, it’s a wealth-building asset. Whether you're planning a renovation, eyeing an investment opportunity, or simply want to understand what’s possible, your equity can be the key.
Have questions about how to make the most of your equity or want to run a scenario on a property you're considering purchasing? Let’s talk. Helping clients build long-term wealth through real estate is what we do best.