Author Topic: Investing from the Equity of a Home ?  (Read 2723 times)

Dancin'Dog

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Investing from the Equity of a Home ?
« on: March 25, 2016, 06:36:50 AM »
I'm pretty clueless to investing, so this may sound like a dumb question. 

I just received a lake house as a gift from my father.  It has a tax value of approximately 600K, and would likely sell for maybe twice that.  I don't plan to sell it, since Dad intended me to keep it for my family to enjoy.  But since it is worth a good bit I am wondering about how to generate income from the equity.

Is it foolish to risk a home that's paid for?  If not, what kind of things should I consider?

(Short term rentals are not allowed in the township, and I don't want to rent it out long term.  So, renting it is not an option. )

 

Spork

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Re: Investing from the Equity of a Home ?
« Reply #1 on: March 25, 2016, 06:45:36 AM »
I think this wholly boils down to your risk tolerance (which is also a factor of your age, to some degree).

I absolutely hate leverage.  Much of it is how I was brought up... but also the older I get, the less leverage I want.

But you're going to find a ton of people that think this is a great idea.  It's just how tolerant of the risk are you?  If you leverage a reasonable amount... and if you invest it in common sense index funds... it's probably fine.  It's not what I would do, but that doesn't make it insane.

LAGuy

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Re: Investing from the Equity of a Home ?
« Reply #2 on: March 25, 2016, 12:11:38 PM »
I think you should reconsider if you really want to keep this property in the first place. Your father intended for you and your family to enjoy it, but is it truly something that you and your family will gain maximum enjoyment from? You can still honor his wishes by selling the place and placing the proceeds towards something that more closely aligns with you and your family's idea of enjoyment as opposed to that of your father's. The opportunity cost alone of hanging onto something like that is quite staggering. Ultimately, this property is now yours and your responsibility is to do what is in the best interests of you and your family.

Tyler

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Re: Investing from the Equity of a Home ?
« Reply #3 on: March 25, 2016, 02:07:01 PM »
To me, the larger issue is how you plan to pay the non-trivial property taxes on a $600k secondary home.  Balancing the sentimental value of the home with financial tax drag is a tricky situation.  Adding leverage on top of that also adds other risks. 

Should we assume that simply moving into the paid off lake house is impractical?

GGNoob

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Re: Investing from the Equity of a Home ?
« Reply #4 on: March 25, 2016, 02:37:31 PM »
I'd probably mortgage it and invest, but that's just me.

capitalninja

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Re: Investing from the Equity of a Home ?
« Reply #5 on: March 25, 2016, 02:37:50 PM »
I'm pretty clueless to investing, so this may sound like a dumb question. 

Is it foolish to risk a home that's paid for?  If not, what kind of things should I consider?

(Short term rentals are not allowed in the township, and I don't want to rent it out long term.  So, renting it is not an option. )

It's very foolish. If you don't like the house enough to keep it, then sell it and invest the proceeds. I would *never* mortgage a paid for property to invest. The ability for your investment to be profitable is hampered when you do it with debt. If you want to generate some cashflow from the property when you're not using, perhaps consider making it a vacation rental. Not what I would do, but it's an option that honors your father's wishes.

Were it me, I would talk to him and let him know that while you're very appreciative of the gift, you don't really intend to use the house ever and would prefer to sell it and use the proceeds for investing. See what he says. I wouldn't keep a house that I have to maintain and pay taxes on that I didn't want regardless of who gave it to me.

If he won't let you sell it or rent it, then what's the point really? It's essentially become an additional expense since you can't sell it. Doesn't matter if it's worth 10 million if you're never able to realize a liquidity event.

Dancin'Dog

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Re: Investing from the Equity of a Home ?
« Reply #6 on: March 25, 2016, 09:32:36 PM »
Thanks for the replies.  I didn't think there was something I should do with it, but I figured that there are a lot of experienced investors here that might know some tricks or ideas that I haven't heard of. 

I didn't really want the property now, but my dad is getting old and dealing with some stressful things.  He wanted to give it to me now to lighten his load of things to worry over.  It might not make the most financial sense at the moment, but I guess sometimes you can reach a point when the money is less important than your peace of mind.  Money used to be very important to him, but he's almost 80 and his vision is beginning to fail.  His priorities have changed a lot lately. 

The place needs a few repairs, and the property tax is sort of high.  I have a home equity line on my home at a very low with a zero balance, so I'll use that if I need to for a few years.  We'll still enjoy the place on weekends during the summer, and we will use it while visiting other family and friends in the area (it's near Charlotte, where I grew up).  The appreciation has been higher than the expenses & taxes since Dad's had it, so I can recover the costs later if I decide to sell it.