Real deals: how to use equity to build a portfolio of real estate assets.

YOLANDA HOLMES HAS WORKED FOR MORE THAN 20 years as a marketing executive. Although she has a steady job and earns a good salary, Holmes, 45, believes that it's her real estate investments that will make her wealthy--not working a 9-to-5. "I have more control over how much I can earn [by investing in real estate]," she says.

For two decades, Holmes has built a respectable portfolio of properties. She started by purchasing a condo in New York's coveted Central Park West area. "Housing prices were not what they are today. At the time, I was looking for a cheap investment [because] I didn't want to pay rent anymore." Holmes made a 10% down payment when she purchased the property for $58,000 in 1989. Today that condo is valued at around $500,000. Ten years later she bought her second property, a brownstone in Harlem, at a city auction. The starting price was $200,000; her winning bid was around $300,000. Holmes had saved enough for a 20% down payment.

In 2004, Holmes had her brownstone assessed. Much to her surprise, the Harlem property had doubled in value. Holmes took equity out of the property to make a 20% down payment on a vacation property on Martha's Vineyard, the popular vacation spot off the coast of Cape Cod. She also refinanced the 15-year mortgage at a rate 3% less than the original.

"It has always been my dream to own a home in the Vineyard, close to the beach--a place for retirement," Holmes says. She achieved her goal by doing her homework, including online research, and heeding counsel from a private banker at her credit union. "She educated me on the process of using equity to pay off debts or buy another home."

The housing market has exploded over the past five years, and homeowners like Holmes have discovered the value of tapping into their property's equity--the difference between the market value and the mortgage. Instead of using funds to make repairs and renovations that increase a property's value, many homeowners use the equity in their homes to expand their real estate holdings. And with interest rates still relatively low, such loans are even more appealing to investors.

Although owning multiple properties can offer investors a great way to build wealth, don't rush to a mortgage lender to take cash out of your home just yet.

Making that move requires planning and research. First, consider the following guidelines:

Don't act on impulse. Often homeowners take out home equity loans or lines of credit without understanding the potential consequences, says Holmes. Make sure you have a purpose for taking out the loan. Lenders are quick to give you money and just as quick to take away your home if you can't pay it back.

Do your research. Make sure you don't pay too much for a property. Currently, housing prices in Harlem and other parts of the country have flattened. Unlike real estate investors of a few years ago, you may not realize a quick return on your investment.

Don't take out more than you can afford. When you take out a home equity loan or line of credit, check your finances to make sure you can afford to pay it back. It is easy to lose track of the money you're spending, warns Holmes. If you don't have a solid financial plan, it will be difficult to handle mortgage payments.

Do create a profit and loss assessment. "Whenever I do an acquisition or buy a property, I do a P&L," Holmes says. "If I buy a property and the roof or heater goes bad, I want to have enough money to pay for repairs and still make the loan payments."

Don't take the total loan amount for which you qualify. "I take only the amount I need to buy the property," Holmes says. "Generally, I pay for any renovations at my own expense, out of my own profit--basically the rent from the rental properties. I don't take out a loan or acquire additional debt to do repairs."

A final home buyer's caveat: know the housing market where you are looking to buy. "You really have to understand what you're buying," says Holmes. "You have to be patient, because not every real estate deal is a good one."

EDITED BY CAROL M. BROWN: [e-mail]