Liquidizing your Home Equity to Build Wealth & Security

As a nice follow up to yesterday’s post on when to borrow against your home, I wanted to share an article that just changed my outlook on life.

First I’d like to thank DividendPrivate for tipping us off on this article, How the Affluent Manage Home Equity to Safely and Conservatively Build Wealth.

I can’t tell you how much you need to reach this article!

Frequent readers will know that James and I have been considering taking out a mortgage on our investment property to access the equity that has built up, making that money work for us, rather than simply be tied up in the property.

We have also been working hard to pay off our second mortgage, almost having paid off $20k since the New Year. While this was done with the best of intention, I now see the error in our ways!

I see that we should have been building up that fund for investment, rather than paying off our mortgage first.

You really have to read the whole article, but I’ll outline some of the key points here:

Every dollar we give the bank is a dollar we did not invest. While paying off the mortgage saves us interest, it denies us the opportunity to earn interest with that money.

By having cash available for emergencies and investment opportunities, most home-owners are better off than if their equity is tied up in their residence.

Home equity is not the same as cash in the bank. Only cash in the bank is the same as cash in the bank.

Home equity is serious money. We are separating it from the home to conserve it, not to consume it. Therefore it should not be invested aggressively. Rather, home equity is best invested in safe, conservative investment vehicles.

We agree with most of their arguments in the article, but given our current financial situation, are willing to take a bit more risk by putting our available resources in dividend producing assets. This wouldn’t necessarily be the choice for those who didn’t have as many resources to fall back on in times of difficulty. When you are trying to build wealth, it is important to not get in over your head and take unnecessary risks that jeopardize your safety net.

We are still trying to figure out how this fits in to our medium-term plans, but as always we’ll keep you posted.

All in all I’d recommend that everyone who is serious about finance read this article in full.

Check it out and let us know what you think!

Miel