You’ve got unearned wealth, what should you do with it?
What is referred to as “equity” is the value above what the owner has invested…so where did that come from? More correctly, it’s whatever has been paid down against the mortgage — what you own free and clear — but in too many markets today, it becomes the combination of that and the scarcity-driven appreciation. It’s the value of location, of scarcity, not the result of anything the owner did. The existence of home equity/HELOCs is predicated on the inevitable increase in value of finite/scarce real estate. If your property isn’t guaranteed to increase in value, you wouldn’t borrow against it…but since it is, many people do.
If you don’t understand or believe that, look around and see how many abandoned properties are still increasing in value? It might not happen overnight, but over a few years, even a vacant lot is worth more than the owner paid for it.
