Monday, January 22, 2007

Using the money in your house

I met a man in the street once whom I’d worked with years before. I asked him, "What are you doing these days?’ ‘Oh, I’m practically a millionaire.’ What a hook line. What could you ask after that, but: ‘HOW?’
Turned out he’d got into the property market when it was at a low ebb. He bought up houses, rented them out, did them up, sold them on – all the sorts of things property people do. And because he’d started at the bottom of the wave, he made a lot of money.
What he didn’t tell us (we went to talk to him with another couple not long afterwards) was that the housing market was then closer to the top of the wave. In our enthusiasm for the subject, we missed out understanding this, and it was a major error that bugged us for a number of years after.
However, what it did do was give us insight into the idea of a Home Equity Loan.
The first house we bought this way turned out to be a dud. We rushed into it, as people with lot of enthusiasm and no experience (and maybe too little wisdom) do, and, after painting it more than once, and putting a new roof on, and attending to its various problems as the years went on, we finally got rid of it, for far less money than we needed to get.
However, when a situation arose where my daughter needed to move into town with her family, we knew the deal with Home Equity Loans, and had no problem hunting out a house and putting a deposit on it with the equity in our home. Long term we made enough on that house (thanks to our son-in-law) to cover all the losses on the other place.
When more recently my son and his wife needed extra cash to get off the ground with their new home, we were able to do the same thing. Learning about equity has been great. However, going into the property market is another thing altogether – and something I’d only recommend to people with nerves of steel!
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