Is it Time to Cash In on Your Equity?

It’s no wonder that many area homeowners think of their home’s recent equity gains as out-of-the-blue windfalls—but not totally “real.” They have a point: just as when real estate values move in the opposite direction, when a home’s market value changes, the advance or retreat is generally considered to be “on paper” only. A paper gain may provide a psychological boost, but unless you plan to sell, that’s pretty much the extent of its significance.

There is one notable exception, as many homeowners have found: the ability to turn a paper gain into cash via refinancing. Especially in recent years, when cut-rate home loan interest offers were the norm, it was possible to replace an original mortgage with a new agreement having significantly lower monthly repayment terms…and pull cash out at the same time. The “paper” gains in those cases were very real—and unexpected for homeowners whose primary focus had been simply to own the place their family calls home. The financial advantages may have been apparent (especially at tax time), but they were incidental. They would have bought their home even if its long-term appreciation was not as consistent as history indicates.

The reason to recount all this now is simply to bring up another financial possibility that may be overlooked when it comes time to move—when your focus is fully taken with the task of selling your home and finding the next.

The other possibility is – don’t.

The business proposition created by owning a rental property is being put into action by more and more canny corporate entities, who are making major inroads into the own-to-rent universe. As Fox Business reported last week, the bigshots may be onto something. Across the U.S., median monthly rent prices increased to record highs in March. For some homeowners who would automatically have put their home on the market as a first step to a change in residence, holding onto the old house might be a strategy worth investigating. For those who are able to keep their house (and its very favorable home loan terms), turning it into a rental might generate a cash flow surplus that could help pay for the new property.