You can really only do this once. Or, more than once if you wait many years in between tries.
Here’s what I mean – we bought our house in 1998, and in 2001 we took out a HELOC (Home Equity Line of Credit) for $10,000. That’s a pretty nice return after only owning the home for three years, and rare. We were fortunate to buy during a buyer’s market and then went to re-finance during a seller’s market We re-financed again in 2008, but then it was to pay-off the HELOC and get a better interest rate. We didn’t go for a profit that time.
So, we “made money” from our home in 2001, and then we will make money again whenever we sell, provided we don’t re-fi between then and now. We’re looking to sell in the next couple years, so now is not the time to re-finance.
In the Tri-Cities, the average rate of real estate appreciation is between 2-3% a year. Some years (like the end of ’08 and the beginning of ’09), we saw no appreciation. However, some years, with beneficial home improvements, in a desirable location, a house can see 3% or even 4% appreciation. Therefore, we’re not the type of market where you can treat your home like an ATM, repeatedly withdrawing equity from your house, thinking it will simply fill back up in a short amount of time.
I had the unfortunate task of explaining this to a couple last night. They want to sell their house, which has seen the usual amount of appreciation. However, they just re-financed in order to get some cash, and even though it is worth more now than it was then, it is not worth significantly more, so the accompanying fees and taxes will not be covered if they go to sell at this time.
“Well, I am not going to PAY money to sell my home!” the wife declared.
“How can we fix it?” the husband asked me.
“You can either wait a significant amount of time for the value of your home to increase sufficiently, or you can realize that you already obtained the major portion of the equity from your house a couple years ago when you did your cash-out re-fi,” I answered. “You cannot obtain that much equity twice in two years.”
By nature, I am a “Let’s go for it!” kind of person, so it really hurts when I have to splash cold water on someone’s plans. Sometimes, I really hate certain aspects of my job, and letting people know they can only get money out of their house once is one of them. Ugh.