As the market has rebounded over the last 10 years, negative equity for many who were able to remain in their homes has turned positive with over 50 percent of homeowners having gained equity in their homes as per Core Logic through 2020.
According to Census Bureau data as of the last quarter of 2020, households aged: 45-54 had $70,860 in home equity totaling 64 percent of their net worth; 55-64 had $103,400 in home equity totaling 61 percent of their net worth; 65-69 had $136,670 in home equity totaling 61 percent of their net worth. About 38 percent of homeowners had paid off their mortgage at the end of 2020, according to the U.S. Census Bureau. Some 74 percent of retirees owned their home outright.
As of March 2021, according to a new report from Core Logic, homeowners with a mortgage saw their equity increase by a total of $1.5 trillion from the fourth quarter of 2019 to the fourth quarter of 2020.
There has been much less refinancing over the last few years compared to the 1980s, when when so many used their homes as a piggybank to pull money out for non-essentials, such as boats, cars and other items, or what I would call foolish non-beneficial expenditures. Many have learned their lessons and are being more prudent with the built-up equity in their homes. Homeowners are in much better shape today than back then.
Well then, the question arises with all that equity, what should you consider doing with it — let it ride and do nothing ? Maybe buy a larger home while interest rates are so low? Or just maybe downsize and cash out? Or maybe, if you take a line of credit and/or refinance, you might consider investing it in a rental property or possibly a second vacation home that could enable you to do an Airbnb part-time rental that would enable you to pay all your mortgage and taxes as you build appreciation and additional equity?
Another thought and possible avenue to pursue would be to seek out and hire a competent and trustworthy stockbroker with positive reviews to invest some of your money in companies that have value-added potential and/or pay good dividends. There will always be a risk reward and one must choose the most comfortable position. But remember, pulling equity via a refinancing or applying for a line of credit (no interest is accrued until you use the money). With a normal refinance, you are obviously responsible for paying the monthly amount with interest, unless you do a reverse mortgage under which you are not obliged to pay anything (get advice and discuss with your mortgage person and/or attorney) until you move or pass away, but the interest continues to accrue.
You could also apply for a reverse mortgage as long as you are 62 or older and it is for living expenses and not any form of gambling in the market or even investment properties, because negative situations can and do occur in the stock market as well as in real estate, e.g., loss of tenants, non-paying tenants, unexpected repairs etc. and you do not need the stress and worry. However, if you are still gainfully employed in a solid industry with excellent income, then other considerations and planning can be made as to where you can gain the best return on your money.
Keep in mind, while the Covid-19 pandemic is still around, by law you cannot evict tenants for the time being. One must be very careful to secure the best tenants you can and a Realtor would be your best source to accomplish this task. Taking this on your own would be a huge mistake unless you have many years of experience. But be careful of professional tenants who may have all the credentials of being 10s, when they could be 0s. Checking and verifying their income, credit, debt/income ratios, assets and liabilities will go a long way in searching out the most qualified tenants.
Be very careful to make sure, however, that you do not discriminate and be consistent in asking the exact same “legally allowable” questions for all tenants. (Here is the link to the most serious and consequential article in last week’s Newsday’s investigation on housing discrimination:
It’s a wonderful feeling to have all the buildup of equity in your home or your investment properties. But depending on your age, risk tolerances and investment strategies and still historically low interest rates, you still need to sit down and plan your course of action and absolutely do not jump on just anything that looks good without doing your homework. You have spent years paying down your mortgage and increasing and building the equity in your property, so put in enough time and effort as well as hiring and engaging the right licensed professionals with excellent reviews and recommendations to guide you so that the end result will be profitable in further increasing your wealth for retirement.
Philip A. Raices is the owner/Broker of Turn Key Real Estate at 3 Grace Ave Suite 180 in Great Neck. He has 39 years of experience in the Real Estate industry and has earned designations as a Graduate of the Realtor Institute (G.R.I.) and also as a Certified International Property Specialist (C.I.P.S). For a “FREE” 15 minute consultation, a value analysis of your home, or to answer any of your questions or concerns he can be reached by cell: (516) 647-4289 or by email: Phil@TurnKeyRealEstate.Com Just email or snail mail (regular mail) him with your ideas or suggestions on future columns