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The Relation Between Depreciation And Refinancing
Because your home appreciates in value, it really is a money farm that allows you to harvest your crop of cash. But if you choose not to harvest them, your cash crop is as good as worthless while you leave them out in the field.
The equity in your house can be taken out for better use in the form of an equity loan with refinancing.
Always have a plan with what you want to do with your home equity.
Think ahead and think about when you are going to extract the equity from it by taking up a home equity loan, and where you are going to put the cash to make good use of the gain you’ve made from the house.
If you don’t intend to make good use of the equity locked in your house, you might as well rent a place instead of buying one.
A house is not a liquid asset. You can’t sell it off and get quick cash like stocks and shares.
So it is a good idea to have financial strategies on how to get cash out of your home before buying it in the first place. Thereby, converting your crops into a cash cow.
The point is not to sell your house and realize the appreciation you have made on your house.
It is to keep your house for yourself and at the same time make full use of the value that is in it to make even more money for you. In effect, you can be controlling at least 150% of what your house is worth in the market if you make good use of remortgaging strategies.
Where does depreciation come it?
Depreciation is a greatly misunderstood term that people associate with loss.
Depreciation is a paper loss.
It is a loss that does not affect your pocket in real terms. It is an accounting principle.
Since it is a loss that you theoretically and supposedly incur, you can actually write it off against your income.
If you happen to own a property in an area that depreciates in market value, you will learn that your house will be worth much less that what you bought it for a few years later.
So you should take advantage of refinancing options to exploit the value of your house while it is high.
Let’s say you own such a property now worth $300,000. If you take out the equity in the house at 80% refinancing, you will have $240,000 of liquid cash to use. If the value of the property drops to $200,000, you don’t have to make up the difference unless you decide to sell the house. You will now be controlling $440,000 of cash for a property worth $200,000.
Does that sound like the a good deal to you?
As long as you continue to service the monthly payments, the lender cannot call back the home equity loan or insist that you pay them more with another round of restructuring.
However, you will make a significant loss if you sell off the house instead of keeping the initial loan.
But no one can force you to sell the house. You can choose to wait it out.
What you did was harvest the home equity in the house by extracting cash by remortgaging your home to put the cash in vehicles that offer good returns while still owning the house.
What if you actually put the money generated from those activities to buy another house?
If this new property appreciates in value, it acts as a hedge to your original house that is depreciating.
If you were to purchase another property at the current depressed value, you now own 2 houses and you will make a pile when the market recovers.
History tells us that the real estate moves in a cycle. Your house will most likely appreciate (if it has not already done so) when you are patient.
If you want to profit from the real estate cycle, you have to be prepared.
Convert your home equity into cash when the value is high by cashing out your house and use that cash to acquire more properties. Cash is what will make you returns, not property.
Most people have the idea of accumulating equity by putting cash into a mortgage. They want to clear the debt they have on the house.
While there is absolutely nothing wrong with that, it is not making full use of what you have. You should be converting your home equity into cash and using that cash to make more cash.
You don’t accumulate wealth by being obnoxious to remortgaging strategies that make full use of your home equity.