Thoughts on Tapping Home Equity

Hello All,

This posting is a bit of departure from our usual fare of interviews and pithy quotes. As frequent readers of our blog know, we DINKs have an investment apartment. Since 2003 its value has appreciated substantially and we now have $75,000 in equity. However, since the market has slowed, we are now challenged with the problem of making this money grow.

So far, our options look like the following:

1) Borrow and Invest in Income Stocks. For this one, the numbers do not look too appealing. According to bankrate.com, we could probably borrow $30,000 at 6% while maintaining the 80% loan to value ratio required by many lenders. On those numbers, the most we would get on a monthly basis after paying Uncle Sam and the bank would be about $90. That's not so hot, but we could keep the apartment.

2) Sell and Reinvest the Equity. After paying taxes and transaction costs, the investable equity would likely be $48,720. Assuming we could find a stock yielding 12%, the monthly payout for this option would be $389.76 - a lot more than the first choice. We would get more money on a monthly basis, but would have to sacrifice owning the property.

3) Do nothing. Sometimes this is the best option. However the return on equity on the apartment is something like 1%, not very good at all.

So, if you have any experience with tapping equity and investing it profitably for current income please feel free to email us. We would love to hear from you.

Thanks,

James