I bought at a great time right before the Charlotte market went nuts… 4 years and I got about 250k of equity. My social media feeds are full of these ‘Put 20k in and the investment firm HAS to pay you 1k a month as a dividend’ type of crap which I just can’t imagine that’s legit… but they are convincing so I’m sure they’ve fooled some folks. I don’t want to just sit on the money, I’d rather it get to work for me. HY savings I could get around 5-6 I suppose… but I was hoping for something a little more aggressive. Hopefully help me retire a bit early. Thought about buying a property internationally and Air BNB’ing it… Maybe pick up a few cars to Turo. WWYD?
Mortgage broker here… Make sure you do the calculations on what interest rate you’d be paying on your mortgage or secured line of credit and how that compounds over time vs potential returns before you do this. Ie there is a cost to ‘releasing equity’. When rates were lower it made more sense but harder to beat the costs of borrowing against your property in today’s rate environment. All in all don’t risk your biggest asset on social media get-rich-quick type investing. I’d recommend speaking to a licensed financial planner who can run these numbers and discuss the risks to see if it makes sense. Honestly right now I wouldn’t do this, I’d keep that spare cash flow from ‘not’ having a mortgage and invest that instead in passive index funds.
@Hayden
Yep that’s good info… we plan on renting for a bit to see where the market goes… time to simplify a bit anyways… we have way more house than we need. Main reason is to cash out the equity… but also gives us some freedom since we won’t be tied down to a property.
@Luca
Honestly this could be a simple way to generate passive income if you’re able to rent somewhere else smaller/cheaper and rent this property out.
@Hayden
You mean I can’t just yell ‘release the equity’? That’s probably why it doesn’t work for me also when I yell into the sea, ‘release the KRAKEN!’
@Hayden
This. The market cycles back around; we had a period of average rates and decent growth, then a period of low rates and rapid growth, now we have a period of high rates with a tough job market, next will be a period of people defaulting on debts, then the bubble bursts and everything starts from square one. Give it 10-15 years and we’ll be back at low rates again, and by that time OP will have 2-3 times (or more) the equity to cash in.
Whenever you borrow money with your house as ‘collateral.’ It means:
- Lender temporarily owns the house.
- You agree that, if you didn’t pay money + interest back in time, they can sell it.
So, definitely keep that in mind as you weigh the risk vs reward.
@Avery
Yeah that’s why I just want to cash out. Thanks for the info.
Luca said:
@Avery
Yeah that’s why I just want to cash out. Thanks for the info.
Only other ‘real’ one I can think of are ‘reverse mortgages.’ For that one:
- You hand the house over to them. They promise to let you live in it as long as you’re alive and didn’t move away.
- They promise to pay you a fixed amount every month while you live in the house.
Obviously, this only works if they think you’ll get less than what the house will be worth when they sell it. They had been wrong on occasion, but typically not.
Licensed real estate advisor here. If you can find a land to develop, 250k should be enough to get you started. Build a SFH. Refi. Do another. Flip a property.
If it sounds too good to be true, it is.
Zeke said:
If it sounds too good to be true, it is.
Yeah I know that one is… so I’m trying to figure out what I should do.
Depends on your next move.
If you plan to buy a primary as a primary residence within the next 12-24 months, a HYSA or money market mutual fund (treasuries only) would be preferable until you figure things out.
If your next purchase is $500-600k, you’ll need $100k-$120k for a down-payment to avoid PMI for a conventional conforming loan.
After that, you have about $130k to play with. If your retirement accounts are maxed out and you have an emergency fund of 6-12 months then you have one last set of decisions. 1) Level of risk tolerance (i.e. how much are you willing to lose and volatility preference…lower or able to withstand higher levels) 2) Liquidity preferences (i.e. when you expect to need the funds)
PE/VC private placement participations provide sizable risk-adjusted returns, moderate volatility compared to public markets, but have long-term lock-up periods and limited liquidity access prior to the fund tenor expiration.
Rental real Estate, ABNB, and other similar vehicles provide fairly stable returns but are much more active than I like or have time for at the moment so I personally wouldn’t go that route unless you have the time.
Public equities and bonds are also reasonable choices and fairly straightforward. These markets are much more liquid but many public equities have higher relative volatility. Though the markets themselves are liquid (providing readily available opportunities to exit), the investment horizon would still be similar to 5+ years as with PE/VC or Real Estate. This due to the nature of investing in public markets in general as capital is continually at risk and exposed to short-term volatility and drawdowns which, over longer periods appear fairly muted.
Lots to consider but really depends on your goals.
Also, I’m assuming you’re selling your property and not taking out a home equity loan or HELOC. I’m also assuming you’re definitely not doing a cashout refinance since you mentioned buying in 2020 which means your mortgage rate is probably super low.
If you are, I definitely wouldn’t take out the full spread between your loan and 80% of your appraised home value (most lenders will want you to keep 20% equity in the property to cushion any decrease in home value).
Lots of people use their property equity to invest but just realize when you do, you’re borrowing against the equity. The only way to actually take out the equity is to sell the property. Generally, home equity loans and HELOCs are for home improvement projects that increase the value of the property used as collateral for the loan or line of credit.
When using leverage, as in this case, whatever you invest in needs to beat your cost of capital which will be the home equity loan/HELOC rate.