Quote:
Originally Posted by SailinAway
question....So far no one has mentioned using home equity for investing. Any thoughts on that and how to do it?
|
I think nobody brought it up because it generally has a lot of pitfalls as noted by JeffK.
I think HE for a leveraged investment such as income generating real estate can work.
If you have $xxx in a particular stock and you have to sell it to buy a property, then HE might be OK because, if forced, you could sell the stock. The problem is, selling the stock (at a lower price?) to buy something else incurs a capital gins tax, so to get $100K you have to sell $120k and give $20K to the IRS. If I can afford to buy something with credit, like a car, at 6%, then using HE to buy the car at 3% tax deductible interest might make sense if you have the self discipline to pay the loan off promptly. Again, using credit to buy depreciating items like cars and boats is not the best plan, but it certainly is part of our economy and lifestyle. It wasn't that long ago that there were boats and boat slips being auctioned by banks around the lake. Save your money--there will be bargains in the future.
Last item on HE loans--remember also when banks were foreclosing on performing loans because the market value dropped precipitously and the debt/equity ratio dropped below standards?