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As you may be aware, taking a home equity loan out for something
that's high risk is not highly recommended. You could lose your
house. I would definitely make a thorough investigation into anything
you do. Remember, Google Answers is not official financial advice.
Because you said "practical" in your question, and you actually want
to "build wealth," and not just eke out a few percent points, your
options are pretty limited, staying within a relatively low risk
approach. Many advertised investment "strategies" are akin to going
to a casino, especially "make money fast" ones.
One of the better solid approaches, is to simply buy other properties,
particularly in booming areas like the Southwest US, a proven growth
spot for real estate. "Master-planned" communities -- ones with all
new houses, walkways, parks, etc. can yield 10%-15% per year. See
examples of such houses at Summerlin's web site www.summerlin.com, in
Las Vegas, NV. On top of the yield, you could rent the property out,
so you're not even paying the mortgage.
Here's a great article on this approach from the Washington Post:
http://www.washingtonpost.com/wp-dyn/articles/A31283-2003Mar15.html
"...Homeowners can use their houses to rearrange their portfolios,"
said Orawin T. Velz, senior economist at Fannie Mae. "It's a very
flexible asset." Chris Dugan, 30, used cash obtained through
refinancing to rearrange his investment portfolio. Dugan, a pilot for
Atlantic Coast Airlines, used the equity he built up in a property he
bought for $109,500 on Maryland's Eastern Shore to buy two investment
condos in Oakton, Va. The Eastern Shore property was recently
appraised for $160,000, giving him tens of thousands of dollars in
equity. "I've bought a property a year for the past three years,"
Dugan said. "This year, I'm hoping for an additional two. Each time,
I've purchased using equity." Real estate becomes an even more
powerful wealth-building tool through the power of leveraging, or
making a relatively small investment to earn a return. "If you buy
stocks worth $100,000, you customarily have to put down $100,000,"
Velz said. "On a $100,000 house, you put down a maximum of $20,000,
but you get appreciation on the whole amount. A lot of the value in
real estate is about leverage." Assume that over time that $100,000
house gains 10 percent in value, after selling costs and the like.
When it sells for $110,000, the $10,000 profit is equivalent to a 50
percent return on that $20,000 investment. (This example assumes the
monthly cost of the property is the owner's cost of housing, which he
would otherwise pay to a landlord.)..."
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"LEVERAGE - A great thing about real estate is that you can tie up a
big asset with a relatively small amount of money. You can easily buy
a $100,000 home with only 10% ($10,000) down payment. To illustrate
the power of this, consider this example: Suppose you bought $10,000
worth of precious metals, mutual funds, or some other investment.
Let’s say that it goes up 10% for the year- not bad. Your investment
is now worth $11,000. So your return is 10% of $10,000 = $1,000. Now
lets suppose that you take that same $10,000 and put it as a down
payment and buy a $100,000 house. Again, let’s say that it goes up
10% for the year. Your property is now worth $110,000! Your $10,000
investment increased by $10,000. That is a 100% return on your money
(not even considering the equity build-up resulting from the
constantly decreasing mortgage, cash flow, or tax advantages)!
TAX ADVANTAGES - You can deduct, as an expense, all of the interest,
property taxes, insurance, repairs, inspections, and depreciation on
your investment real estate- no matter how much you own. Do not
confuse this with the rule for personal residences. While you can only
deduct interest on up to 2 personal residences, you can write off
unlimited investment interest.
The IRS also allows you to take a paper write off (depreciation). You
can depreciate the structure (not the land) as if it would be worth
nothing at the end of 27.5 years! Of course we all know that the
property will probably be worth much, much more in 27.5 years than it
is now -not less.
Nevertheless, on a 100,000 house (assuming, for example sake, the
structure is worth 80% of the total) we are allowed to write off
nearly $3,000 in depreciation alone each year!"
See more at Cre8tive Reality
http://www.cre8tiverealty.com/u.htm
Another option is the stock market, using conservative approach, like
investing in high-yielding-dividend stocks that are relatively steady,
barring any major economic cataclysm. There is a technique to
investing in the market called "Dogs of the Dow": "After the stock
market closes on the last day of the year, of the 30 stocks which make
up the Dow Jones Industrial Average, select the ten stocks which have
the highest dividend yield. Then simply get in touch with your broker
and invest an equal dollar amount in each of these 10 highest yielding
Dow stocks. Then hold these ten "Dogs of the Dow" for one year. Repeat
these steps each and every year." These stocks are relatively stable,
massive companies which tend to stay within a tolerable level of
fluctuation.
Dogs of the Dow
http://www.dogsofthedow.com
If you're more ambitious, you could investigate taking advantage of
wage disparities in different countries. For instance, outsourcing
web design to the Philipines using American dollars is incredibly
lucrative. Programmers there receive a few hundred dollars PER MONTH
to do programming tasks that require thousands of dollars here. This
option might sneak past the borderline of "practical," however.
You might also think about investing in a small business you could
run. For instance, a cell-phone store:
@Wireless
http://www.shopatwireless.com/store/f_info.asp?
You would have equity in the products in your store to some extent, so
there's a little risk padding. Location is incredibly important, and
it is definitely more "hands on."
Remember, everything poses a risk, and money with your house on the
line is particularly fragile. Hope this helps you in your quest.
jbf777-ga
GA Researcher |
