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Investing in Home Equity: What You Need to Know

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Learn about the potential of home equity investments and how to access the funds. Understand the pros and cons of various methods and be prepared for surprises.

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Investing in home equity can be an attractive proposition for many homeowners. Tapping home equity can be a smart move, but don’t get trapped. Know what surprises could be lurking and be prepared. In exchange for a portion of future appreciation, home equity sharing agreements provide access to quick cash with no monthly payments or interest. Home equity sharing lets homeowners sell a ‘slice’ of their house. Here’s how the deals work, and all their pros and cons.

Most homeowners who want to liquidate home equity look to traditional mortgage options like a cash-out refinance, home equity loan or HELOC. Cash-out refinances are an attractive option because they are relatively easy to get and offer relatively low interest rates. Home equity loans have higher interest rates than cash-out refinances, but they offer longer repayment terms and fixed interest rates. Home equity lines of credit (HELOCs) have variable interest rates and lower closing costs, but they require a significant amount of equity in the home.

Home equity sharing agreements let you access funds in exchange for a share of your property’s future appreciation. These agreements are typically used to finance home improvements, consolidate debt, or pay for college tuition. But before signing a home equity sharing agreement, make sure you understand the terms of the agreement, including the length of the agreement, the percentage of appreciation you are required to share, and any other fees or costs associated with the agreement.

San Diego, California-based startup Splitero, which is focused on home equity investments (HEI), has raised about $12 million in a Series A funding round to expand its home equity investment platform. The company is currently offering home equity investment opportunities in California, Texas, and Florida. Splitero’s platform allows investors to purchase a portion of a home’s appreciation, which can be a great way to diversify a portfolio.

How one Boston real estate investment firm earned millions by foreclosing on property tax debts it purchased from cities and towns. This is a great example of how home equity investments can be a lucrative endeavor. The firm was able to purchase tax liens at a discount, foreclose on the property, and then resell the property at a profit.

HELOCs are available for non-owner occupied homes, but they can be harder to get. Learn about how you can take out a HELOC on an investment property and the pros and cons of doing so. A HELOC can be a great way to finance renovations or other upgrades to a property, but be sure to understand all the terms and conditions associated with the loan before signing any paperwork.

You can leverage your equity to buy another house, a vacation home, or even an investment property. Home equity can be used to purchase a second home, though it is typically more difficult to get a loan for an investment property. Be sure to understand the terms and conditions of the loan, including the interest rate, repayment terms, and other fees and costs associated with the loan.


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