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Equity Beware!!
| | Friday, April 02, 2004 @ 08:00 AM EST
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Contributed by: eric szczepkowski
eric szczepkowski Properties
Read more archived articles about Credit and Finance
The last thing you want, as an investor, is another investor knocking on your door, because YOUR house is up for auction. Many people use their EQUITY from other properties they have, as they money. This is a good way to buy buy buy, and not have to use "your money"
The problem with equity, however, is this. Lets say
your market is beginning to stablize, and you get your 100k house, for 70K. Now lets say 2 months later, you find a rehab property for 30k. Your thinking, I have equity in my house, so why not use it. Your on the right track, but I would be careful in your stablizing market.
Once a market begins to stablize, the interest rates typically rise. When this happens, and one needs to take money out against their house, they end up paying astonomical rates. Another nitemare that could happen, is the market depreciates 1-2%, and now your house isn't quite worth what it was last year and now you owe 100k on a house (70k for the 1st, and 30k for the second) and the house is only woth 98-99k. Your now upside-down with equity. (THe same thing that happens to many people with cars and trucks.) This is beginning to SLOWLY happen in Massachusetts, the market is beginning to stablize, and house prices come down. Now lets say somthing happens, and you need money fast for an emergency. (your boiler lets go) and you now have no money to take against the house. You may find yourself tied up in a situation, and may find yourself getting letters from lenders and attorneys! Equity is a great thing. But don't take advantage of it. As a rule of thumb. I always try to keep AT LEAST 5-10% equity in a house that I have, incase of disaster. Just My two Cents
Happy Investing
Word Cloud:
market lets thing with have, last money have 100k house, beginning stablize, beware!! equity another they against this many take find yourself happens, house people
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