Using Your Home’s “Dead” Equity

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Using Your Home's "Dead" Equity

Question. Our house is free and clear. We have a $100,000 home equity line of credit, and the interest rate is somewhere in the neighborhood of 7 percent. We itemize tax deductions and are in a high federal tax rate, and hoping that any new tax laws will reduce our taxes.

My question concerns using the home equity loan for investment. We are considering using $50,000 of the home equity line of credit and investing it in a growth stock for the next five years. Our accountant/tax advisor, however, is strongly in favor of having an unencumbered house especially as we are close to retirement.

Answer. It is my strong belief that homeowners — of any age — should make use of the equity they have gained from their real estate investments. As this column has suggested in the past, there are too many retired persons who are “house rich and cash poor.” Hopefully, your house will appreciate in the future, and this appreciation will continue whether you have equity or not in the home. Thus, for all practical purposes, that equity is “dead equity.”

There are, however, a number of parts to your question.

First, should you use the equity in your home for investment purposes? My answer is a qualified yes. Are you prepared to lose your investment if the stock market tumbles? Growth stocks may grow — or they may not. If you are in any way concerned about risk, you should consider investing in government insured programs or tax free bonds. Of course, the higher rate of potential return will also carry a higher risk.

I am sure that readers will ask: why borrow money at 4 or 5 percent only to invest it in a security which has a 2 or 3 percent rate of return? Here, you have to do the numbers, and also look to your own future situation.

At first blush, it makes no sense to pay more interest than you are receiving from your investment — especially if that investment has no (or little) growth capacity. But there is one important factor that must be considered, namely the liquidity of your investments. If you find at a later date that you need money for emergency purposes, if may be difficult — if not impossible — to tap into the equity of your home when you are retired and no longer employed. The investments you are considering — whether stocks, mutual funds, or government securities — do have immediate liquidity.

Second. If you decide to invest the equity in your home, what is the best route to take? You have indicated that your current home equity line of credit is around 7 percent. This seems rather high in today’s market.

More importantly, most home equity loans fluctuate in rate; the rate of interest is pegged to some index — such as “prime.” If the prime rate rises or falls, so will the interest rate on your home equity loan.

Instead of using your home equity, you may want to consider refinancing your home, while interest rates are relatively low and stable. You can probably get a fixed 30 year rate for around 4 percent. While I understand you may be reluctant to borrow for such a long time — especially when faced with retirement — the alternative is to keep the equity in your home.

How will you make the monthly mortgage payments when you are retired? If you do not have other sources of income — such as a pension plan — you still have the liquidity of your investments that should be able to carry you for a long period of time.

Additionally, if you decide to refinance your home, although the refinance funds will pay off your home equity loan, nevertheless, you definitely should keep the home equity loan available. As you know, a home equity loan is a line of credit; you only pay interest on the amount of the money you have actually borrowed. If you obtain a refinance mortgage, make sure that you can also keep the existing (or obtain a new) home equity loan. There are some logistical legal issues that your attorney can handle to make these arrangements.

Third. You must understand the tax implications of borrowing on your home equity. Interest deductions for tax purposes are based, in part, on what the IRS calls “acquisition indebtedness.” In your case, this indebtedness is zero, since your house is free and clear. You will only be entitled to deduct interest on the first $100,000 that you borrow — whether this money comes from a new first mortgage or a home equity loan. And this may all change if Congress enacts a new tax code.

These are difficult — and clearly personal — decisions that everyone must consider. Talk to your tax advisors, and “crunch the numbers.”

melting-watch

MARKET WATCH

Single Family Home Activity in the Antelope Valley

In the last 24 hours
12/13/17

New Listings …  16
Sold …  21
Pending …  19
Expd/Wthd/Cancld …  10
Price Increases …  01
Price Reductions …  06
Number of listings* …  944
Average Days on Market …  91
Short sale/pay listings …  06
Equity listings …  830
Bank owned listings …  20
HUD, Corp, Probate and Auction listings …  38
Days of inventory (at the average rate**) …  22.96
Days of inventory (at yesterdays rate**) …  30.45
Actual Number of days of inventory***  …  62.93

View the last 8+ years of data HERE!

SELECT THE CHART TO VIEW
(each will open a new tab)

New Listings on the Market

Closed (Sold) Transactions

Pending Units

Expired Listings

Price Increases

Price Decreases

Total Number of Listings

Days of Inventory 

Average Selling Price

Monthly Selling Price Points
(Price extremes at the end of the month)

Daily Day’s on the Market

Monthly Day’s on the Market

Total Sort Pays

Sold by Month

Total Sales in Last 12 Months

Avg. Number of Solds per Month over 12 Months

 

* Count includes all ACTIVE and CONTINGENT MLS listings
** Assuming no future growth or reduction
*** At yesterdays depletion rate (∞ indicates negative depletion,
inventory would not be depleted at this sales rate)
ALL DATA WAS DERIVED FROM THE “GREATER ANTELOPE VALLEY
ASSOCIATION OF REALTORS®” AND IS DEEMED RELIABLE.
THE CALCULATIONS OF THAT DATA IS THE
RESPONSIBILITY OF DON GOCKEL, REALTOR®

Purple Power: How To Use Pantone’s 2018 Color Of The Year

WRITTEN BY JAYMI NACIRI

Purple Power: How To Use Pantone's 2018 Color Of The Year

Seeing a whole lot of purple recently? It’s not an homage to Prince. It’s Pantone’s Color of the Year for 2018, and it’s about to be everywhere.

Pantone, the world’s leading color authority, typically sets off trends with its annual color choice. So expect fashion and home décor to soon be wrapped in PANTONE 18-3838 Ultra Violet, a color choice they call “a dramatically provocative and thoughtful purple shade (that) communicates originality, ingenuity, and visionary thinking that points us toward the future.”

And you just thought it would look pretty in the bedroom.

“Complex and contemplative, Ultra Violet suggests the mysteries of the cosmos, the intrigue of what lies ahead, and the discoveries beyond where we are now,” they said. “The vast and limitless night sky is symbolic of what is possible and continues to inspire the desire to pursue a world beyond our own.”

In color theory, purple is recognized for its “mystic and royal qualities,” and is a soothing color that inspires creativity and “calms the mind and nerves,” said Sensational Color.

That makes it a good choice for just about any space in the house, especially if you’re trying to stand out, since “enigmatic purples have also long been symbolic of counterculture, unconventionality, and artistic brilliance,” said Pantone.

As designlike puts it, you can “use the psychological effects of color purple to create a luxurious and expensive environment to your home. “If it has a bluish shade, it can be serene and calm and gives an air of mystery. Reddish shades attract more attention and dominate the room. Purple color has a long reputation of royalty and power.”

Architectural Digest called Ultra Violet “a sort of thematic continuation of Greenery, the 2017 selection meant to evoke ideas of revival and renewal,” and said that Ultra Violet “symbolizes the sort of mindfulness and boundary-pushing that ultimately propels each of us – and the world at large – forward.” They sought to learn more about the inspiration behind the color choice and how to use it at home from Laurie Pressman, vice president of the Pantone Color Institute.

It has an ability “to play nice with everything from grays and taupes to pastels and metallics (depending on your tolerance for boldness),” she said. “In addition to offering tranquil lighting hues, Ultra Violet will also work well alongside other purples within floral pieces, or in decorative dining accents like candles, plates, or glassware.”

Here are some ideas to give you purple inspiration.

Go big

Why just stick to one purple hue? This living room will never get boring.


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Do it in the bedroom

The same idea works wonderfully in an elegant yet bohemian bedroom. The boldness of purple plays well with neutrals, but look what it does with other bold colors! The space is deep, rich, and luxurious, but also maintains a playfulness.


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On the other side of the design coin, we have this bedroom, which is entirely neutral expect for the purple punch. By only introducing it in accessories in this space, you can change it up on a whim, or the next time a “Color of the Year” is introduced.


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Kitchen

You may not be ready for this level of purple commitment, but wouldn’t it be cool if you were?


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Bathroom

Purple is a rich choice in the bathroom, providing a chic backdrop for glamorous finishes.


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Your walls

Splash it on the walls and let the natural light provide contrast.


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Or, pick a great piece of art that brings in the color and keeps your commitment ultra-low.


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Dining table

You may not have ever thought about a deep purple dining room table, but you may now. Between the clean lines, the glossy finish, and the gorgeous color, this would certainly amp up your dinner parties.


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Starting small

Of course, you don’t have to go out and buy one of the most significant pieces of furniture in your home to incorporate the color into your space. The saturated purple of the chairs in this space offers the perfect accent to a room that already has a surprising color element: the black wall. All that white in the rest of the space keeps it light and bright despite the dark colors.


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“This striking and glamorous piece will look good wherever you place it – whether it’s at the foot of your bed or in your entryway,” said Real Simple. “It doesn’t hurt that the velvet material is a trend of the moment, too.” Or that it is just $150 at Target.

realsimple.com