Your Equity in a Second Home

One of the things we are reminded when the real estate market surprises us with a serious slowdown is that it is very good to have a reasonable amount of equity in a home, especially if we’re never certain when we may want or need to sell it.

One of the things we are reminded when the real estate market surprises us with a serious slowdown is that it is very good to have a reasonable amount of equity in a home, especially if we’re never certain when we may want or need to sell it.

Say, for example, you own a modest $500,000 vacation home that you rent out frequently. You bought it originally for $400,000, and you’ve been sprucing it up during the times it’s stood empty—upgrading the appliances, adding new wall and window coverings, and finding ways to make it more and more beautiful. And you’ve financed these upgrades largely through a second loan you took out against the home.

The problem here is that your decorating and upgrading could put you in a position where you have as much money in the home as it is worth. Should the market take a dive—and the value of the property decline—you may not be able to get all of your money out of the home in a sale. Indeed, you may have to pay out of your pocket to cover the full amount of indebtedness secured by the home.

It is wise, therefore, to maintain a healthy cushion of equity—wiser than it is to decorate the property to the nines—just in case the market turns and your options suddenly narrow as a result. The same is true with your own home, in fact, and with many capital assets you may own. For assistance with real estate call Beth at 425-450-5208 and visit her website at www.bethbillington.com.