Half of U.S. households are rich in equity — these states have the most

According to Real Estate Data Corp. AtomU.S. Home Equity and Underwater Report for the Second Quarter of 2024, U.S. Homeowners Are Sitting on a Pile household assets. In the second quarter of 2024, 49.2% of mortgaged residential properties in the United States were considered equity-rich after years of being on the refinance wait-and-see amid high interest rates. ATOM defines asset-rich as meaning that the estimated total amount of the loan balance secured by the property does not exceed half its estimated market value.

The saying “a rising tide lifts all boats” has been proven in the real estate industryalsoas house prices rise, homes escape negative equity. part Underwater home mortgage It dropped to 2.4% in the second quarter, or one in 42. It dropped from 2.7% in the previous quarter and was the lowest level grade At least since 2019.

Experiencing some of the biggest house price surges we have seen in recent years

fair The gains come in the inventory-starved post-COVID era, when rising interest rates stalled the housing market and forced owners to borrow less. However, as interest rates began to fall, homeowners Now able to Investment funds.

ATOM CEO Rob Barber stated on the company’s website:

“Homeowner wealth improved significantly in the second quarter as equity levels were impacted by some of the biggest home price surges we have seen in recent years. After a period of stagnant or even declining equity markets, the ongoing housing market boom provided a boost for homeowners Here comes another piece of good news, the supply of homes for sale remains limited and buyer demand is limited. usually elevated during summer. So it wouldn’t be surprising if home values ​​moved higher, driving equity gains.

According to ATOM data, measured annually, stock richness increased in 31 states, including maximum Quarterly growth was seen in low-price markets, primarily in the South and Midwest.

The top five are:

• Kentucky (share of homes with mortgages considered equity-rich increases from 28.7% in Q1 2024 to 37.4% in Q2 2024)
• Illinois (up from 28.3% to 36.1%)
• Missouri (up from 38.3% to 45.5%)
• Oklahoma (up from 28.1% to 34.5%)
• Alabama (up from 35.7% to 41.9%)

Stock markets surge in Northeast and West

However, the highest proportions of asset-rich homeowners are found in the Northeast and West. Here are the top five states:

• Vermont (83.5%)
• Maine (61.5%)
• New Hampshire (61.1%)
• Montana (61.1%)
• Rhode Island (60.2%)

Not surprisingly, this phenomenon is also seen in affluent cities with populations over 500,000 and high-priced housing (median homes exceed $400,000). big Equity Income. These include:

• saint joseph (70.4% have significant equity ownership; median home price in Q2 was $1.6 million)
• Miami (65.4%; median $485,000)
• San Diego (65.4%; median $910,000)
• angels (65.3%; median $963,500)
• Portland, Maine (65.1%; median $499,411)

In the central and western regions, grand rapids, michigan (57.2% stock-rich; median $325,000) tops the stock-rich list.

How to leverage your equity

and Rates scheduled to drop— Possibly Dramatically — By 2025, homeowners across the country will be in the lucky position of: able to utilize invest their equity. For many, this may mark a huge step forward at the beginning of their investing journey. For others, it may be the final part of a decades-long plan to finally step away from the rat race and retire.

Many investors with large portfolios may use this opportunity Transition to large-scale investment Multifamily and commercial building. If these situations apply, here are your most accessible investment options.

Cash out refinance to purchase new investment property

Banks are preparing for a refinancing boom in 2025. cash out refinance Lower interest rates will allow you to withdraw equity from your home and invest it while keeping your payments the same or even forgoing them.

Get a home equity line of credit BRRRR

The good thing is Hurlock It’s just that once you go through a stage BRRRRR And to refinance your rental, you can put money back into your HELOC until you find Next properties and repeat the process. With a HELOC, you only pay for what you use, so the money you take out can be staggered into one refinance and held in escrow the next, accelerating your investment without incurring high HELOC payments. .

Invest in REITs or ambitious stock

If you find actual real estate investing too labor-intensive and risky, invest in properties that perform well REIT (real estate investment trust) or stock It may be that the passive option appeals to you. While many real estate investors may view the stock market as inherently risky, without the benefits of cash flow, depreciation and expense write-offs, you can still make serious money if you invest correctly, funds from You can then redeploy in the estate.

Technology giant Nvidia shares soar 262% in short Its chips fueled a boom in artificial intelligence (AI) last year that outpaced gains in real estate prices or other technology stocks. No wonder this company, Which yes valuable More than $3 trillion has been spent $374 million buy most of it st clair Headquarters. many of them Senior executives and board members have been cashing out their stocks Buy luxury real estate.

Being a smart investor means putting your cash into one high-performing investment after another to fuel growth.

become part of syndicate

If investing in the stock market seems too much like casino gambling, you might want to stick to passive investing in real estate. In this case, joining a syndicate might be a good idea.

However, if we’ve learned anything from recent rate hikes, it’s that syndicates can also be risky. People with short-term financing vulnerable When a black swan economic event occurs such as a pandemic, war, or financial collapse.

If you allow others to invest your cash for you, make sure you understand everything about their financing, or conversely, set up your my own Join a team of partners who work closely together so you can make your own financial decisions and invest according to your risk tolerance.

become hard currency lender

Let someone else handle the tenants, termites, toilets, contractors, permits and midnight plumbers. If you’re tired of the labor-intensive nature of renting or flipping houses and have enough equity to lend to investors, you can get a HELOC and lend out your cash as collateral. hard money lender Maybe that’s the way to go.

The rate of return for doing this needs to be much higher than what you would pay with your line of credit. You need to thoroughly vet your investors and take safeguards like first liens to protect yourself. You can enjoy watching your money work while you focus on other things.

Sell ​​and 1031 exchange

1031 comminicate Are great wealth creators because they defer your capital gains taxes. Selling a home with substantial equity and putting it into another low-interest-rate project is a proven strategy for building tax-free wealth.

Another benefit of 1031 exchange is that they are flexible in application. You can choose to invest some or all of your equity in one of several projects, and they don’t have to be Exactly The same type of commercial building you are selling.

final thoughts

It’s always a great feeling to shake the equity tree and watch your hard-earned investments fall into your lap, but there are some golden rules to remember when working with home equity.

First of all, this is not free money. Whether you take out a HELOC, HELOAN, or do a cash-out refinance, you’ll pay a borrowing rate based on the appreciation in your property, so make sure whatever you invest in will earn more than the interest rate you pay.

Secondly, and this follows from the previous point, don’t try to selfishly buy something for yourself and justify it by saying “I deserve this” or “I’ll do this for myself and invest the rest”. Never spend principal, always profit. Only spend borrowed money on things that make you money.

Follow these golden rules and ride off into the sunset on the coming equity train.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.