Author Topic: I'm building equity  (Read 832 times)

pmac

  • 5 O'Clock Shadow
  • *
  • Posts: 65
I'm building equity
« on: July 25, 2019, 03:37:41 PM »
Why is it that when people purchase a home, they say they are "building up equity"?

Aren't those of us who are actually purchasing equities a.k.a stocks really the ones "building up equity or equities?"

You look at a 30 year mortgage and the first 10 years most of it goes straight to interest payments, barely any goes into the principal or "equity".

I know there's a big debate about renting vs. owing a home, but those who rent and invest in stocks seem to be the ones that are doing a better job at "building equity"

ILikeDividends

  • Bristles
  • ***
  • Posts: 459
Re: I'm building equity
« Reply #1 on: July 25, 2019, 07:23:11 PM »
Equity is to stock what fruit is to an apple.

Stock is a specific kind of equity.  An apple is a specific kind of fruit.

In other words, every kind of apple is a member of the fruit category, just as every stock certificate is a member of the equity category.  But it doesn't work the other way around; e.g., not every kind of fruit is an apple.  Likewise, not all kinds of equity equals stock in a public company.

https://www.accountingcoach.com/blog/equity

"Equity can indicate an ownership interest in a business, such as stockholders' equity or owner's equity.

Equity can mean the combination of liabilities and owner's equity. For example, the basic accounting equation Assets = Liabilities + Owner's Equity can be restated to be Assets = Equities.

Equity can mean an owner's interest in a personal asset. For example, the owner of a $200,000 house that has a mortgage loan of $75,000 is said to have $125,000 of equity in the house.
"

To your specific question:
Why is it that when people purchase a home, they say they are "building up equity"?
Every mortgage payment pays some portion of interest, and some portion of the original principal of the loan.  The portion of principal that is paid increases the owner's interest in that personal asset (3rd definition, above); i.e., it increases their equity in their home.  Once you own your home outright (no mortgages) you have 100% equity in the home.
« Last Edit: July 25, 2019, 07:51:36 PM by ILikeDividends »

Andy R

  • Bristles
  • ***
  • Posts: 325
Re: I'm building equity
« Reply #2 on: July 25, 2019, 08:09:37 PM »
Aren't those of us who are actually purchasing equities a.k.a stocks really the ones "building up equity or equities?"
Nobody said there were not other types of equity.
It seems like you are just saying that because the word "equity" sounds like "equities"?

I know there's a big debate about renting vs. owing a home, but those who rent and invest in stocks seem to be the ones that are doing a better job at "building equity"
Not sure how you come to that conclusion.
Maybe you should learn about leverage - when you put 20% down, your asset is growing at 500% compared to not using borrowing.

shinn497

  • Bristles
  • ***
  • Posts: 391
Re: I'm building equity
« Reply #3 on: July 25, 2019, 10:22:06 PM »
Homes and stocks are both equity.  Homes just increase in price a lot less and are significantly harder to sell.

A Fella from Stella

  • Pencil Stache
  • ****
  • Posts: 524
Re: I'm building equity
« Reply #4 on: July 26, 2019, 08:17:11 AM »
A great Q!!!!

You only say it with the house because you have to face down the 360 months of payments, and rather than just start doing cocaine - a hell of a drug - you say "I'm smart."