Equity Rich, Cash Poor: The Growing Dilemma No One Wants to Admit

[David Litt]

Over the last few months, I’ve had a front-row seat to a quiet but growing problem: homeowners and small landlords sitting on a mountain of equity—but struggling to cover the basics.

On paper, they’re doing great. Six figures of equity, appreciation over the years, low interest rates locked in. But dig a little deeper and you find the cracks—rising insurance premiums, higher property taxes, mounting maintenance costs, and dwindling savings. Some are using credit cards just to stay afloat, hoping to ride it out. Others are considering selling—not because they want to—but because they have to.

What’s becoming clear is that equity isn’t liquid. And in an uncertain economy, liquidity is what gives you options.

I’m curious—how is everyone here thinking about liquidity vs. equity right now?
Are you adjusting your strategy to build more cash reserves, or still focused on acquisition and growth?

Let’s talk about the “not-so-obvious” risks that come with being equity-rich but cash-strapped. Because from where I sit, that’s a reality more investors and homeowners are starting to quietly face.

[Errol Graham]

@David Litt, you have raised an issue that has been on my mind for about a year now as I watched insurance rates spiral in my area (Central Florida) and more recently as HOA dues and taxes steadily increased.

These developments have pushed me to give more careful consideration to the strategies that I should focus on going forward to achieve my goals of scaling my portfolio. For one, I am focusing more on single family homes as this gives me more control over my various cost elements, since there are usually no HOA for SFH unless it's in an incorporated city. I have also experimented with breaking up the insurance into two important components, that is personal liability and peril. I don't yet have enough data points (years) to see if this separation is a more cost-effective approach to insurance.

I have had one bad experience of trying to make my equity work for me when I took out a Home Equity Line of Credit to purchase another property. Unfortunately, it was a variable rate credit and the rate shot up from 5 to 9.5 percent and sent my cash flow from the property into negative territory. Lesson: avoid variable interest rate debt for property and stick to fix-rate, 30-year mortgage.