Monetizing a non-liquid asset

[SteveDallas]

Let's say (hypothetically speaking of course ) you've got this house. You live in it. You've owned it for about 10 years. Its market value is somewhere between 2.5 and 3 times the current balance of your mortgage.

If you don't feel like selling the house and moving, what are some techniques for taking advantage of your equity?

[barefoot serpent]

take a 2nd and buy stuff.

[Undertoad]

ditech.com -- since GM can't sell cars it sells money.

lendingtree.com -- if you want 5 different major banks to check your credit history all at the same time, possibly causing notes on it to happen, such as "too many banks are checking this credit history at the same time". You are effectively filing a loan application with all of them, before you get a "quote".


You can probably get the same quotes as lendingtree by merely going to all the major bank websites and asking for a quote. A 30-year re-fi with $30,000 equity cashout (or whatever) is probably the most common thing they see.

[SteveDallas]

Hmmm hadn't really considered the cash-out mortgage concept. I'm leery of the straight home equity loan... you have to pay it back and I'm not sure in our situation we really come out ahead that. (We're sitting on a lot of equity in the house, but we're not sitting on a lot of unused take-home pay.)

[barefoot serpent]

buy some income property -- that is, if you don't mind being a landlord.

[glatt]

If you were older, you could do a reverse mortgage.

[Undertoad]

Oh, you want that equity for investment purposes?

You have something in mind that can grow your worth faster than 3 times in 10 years?

Is there something that makes you think your house is going to decrease in value in the next 10 years, or do you believe that your additional wealth here is from the national or local bubble?

(Do you want to invest in one of my money-losing projects? I currently have three ideas; one is very good, one is average, and one is poor)

[SteveDallas]

Those are all good questions, UT.

[Undertoad]

You need a personal financial advisor like lookout123 to answer those kinds of questions. Generally, if you have a house and it is not decreasing in value, that's your basic nest egg kind of investment because it's not going anywhere.

(If you get a divorce, the money in that nest egg is often most of the money that you will fight over, because one of you generally has to leave.)

If you have all other considerations taken care of, and you have some savings beyond the value in the house, the question then becomes (I suppose) whether you can use a cashout to make more money than the price of the mortgage. Say, for example, on one of my projects. (I didn't mention the lotto one that could make a real mint, because it's not my project, it's my friend's)

Mortgage money is a very cheap loan, the cheapest you will ever get; it is tempting to try to make more money with that money. And mortgage money, over the long term, is cheaper than car loans, credit cards, etc.

Home improvement is another matter, if you can use a loan and actually improve the value of your house, in some cases it could be like free money.

[lookout123]

You have something in mind that can grow your worth faster than 3 times in 10 years?

that question is common, but dangerous. that is like asking "do you know of a better way of making money than IPO's"? -- in 2000.

the only real way to tap your equity and put it to good use is to redo the mortgage. i don't like the online mortgage companies (except USAA) and the bank is your enemy. they look cheaper, but... ask for word of mouth referrals for a good mortgage professional. (if they are willing to quote rates over the phone i wouldn't use 'em - they're just a salesman) they should be able to work with a LARGE number of finance companies, not just 2 or 3. a mortgage prof should interview you and find out your goals for seeking a refi or new loan. then and only then should they be able to make recommendations or begin looking at product pricing.

before you even bother, you need to evaluate yourself. 1) Can you make increased monthly payments? sometimes income from the invested capital is used to cover small shortages 2) Do you have the stomach to watch market fluctuations without jumping ship? [i][i]risk tolerance, 3) How long do you plan on living in this house? 4) Are you disciplined enough to not spend the money withdrawn from the house?

just some thoughts. over the long haul real estate only appreciates on average <7%. the general market has @12%, on average. money trapped in equity does you no good, so if you can answer appropriately some of the questions above, you might want to consider restructuring.

[SteveDallas]

Thanks, I appreciate the info.

Originally Posted by lookout123

just some thoughts. over the long haul real estate only appreciates on average <7%. the general market has @12%, on average. money trapped in equity does you no good, so if you can answer appropriately some of the questions above, you might want to consider restructuring.

Yeah, we're thinking of trying to sock something away for the kids' college, and I have a feeling (though I'm not an expert) that the house is at, or close, to its peak value at least for this cycle.

(btw remember I said the house is worth about 2.5-3x the current mortgage balance.... not 3x what we paid for it!)

[lookout123]

funding college for the kids is a noble and worthwhile enterprise.


yes, there is a BUT.

1) if you don't have your retirement funds FULLY in line to achieve your goals you shouldn't even think about college. no one will approach you on retirement day and say, "you've worked hard here's a grant, scholarship, loan..."

2) money needs time to work. make sure you have enough time to allow $$ to do it's job.

3) although i do work with college funds i advise parents funding the entire education because i believe there is value in making the kids work for it. even for my wealthiest clients i advise that they make their kids figure out how to pay for college on their own, and then if they are so inclined step in after graduation to pay the bills off if they want. that is just me, though. i don't believe a college education is a right just because mom and dad know how to save.

if you don't have a trusted advisor already, and don't want to be tw, i suggest you find someone to sit with before you make any decisions. if you want i can give you some hints on where to start and how to pick a good one.

[Griff]

Originally Posted by lookout123

3) although i do work with college funds i advise parents funding the entire education because i believe there is value in making the kids work for it. even for my wealthiest clients i advise that they make their kids figure out how to pay for college on their own, and then if they are so inclined step in after graduation to pay the bills off if they want. that is just me, though. i don't believe a college education is a right just because mom and dad know how to save.

There is a lot of wisdom there. We all know folks who were in college for no other reason than postponing adulthood. There is a balance to make though if the kid is taking challeging enough coursework that work is right out outside of summer vacation.

[lookout123]

definitely a judgement call there. of course parents are going to help their kids with some cash here and there, i strongly advise paying for the education itself - without strings attached.

everybody is different but i find very real lasting value in making the kids work their way through college regardless of course load. i'm not exactly einstein here and i carried 21 hours/semester and worked 3 part time jobs (more hours/more flexibility than one full time job) all the way through school. that was my choice and extreme - but it certainly can be done. one of the reasons i like to see them work through school is that the transition to "real" adult working person is usually easier. instead of graduating and then finding out what responsibility, schedules, and all that fun stuff is about, they actually find their new career is in some ways easier than school. they have one thing to focus on and they find that adulthood is actually easier than college was.

i just reread that and i'm not sure if it makes sense. lots of cold medicine running around my body today.

[Griff]

Originally Posted by lookout123

... one of the reasons i like to see them work through school is that the transition to "real" adult working person is usually easier. instead of graduating and then finding out what responsibility, schedules, and all that fun stuff is about, they actually find their new career is in some ways easier than school. they have one thing to focus on and they find that adulthood is actually easier than college was.

good stuff