Should You Pull Equity From Your Home for Investment Purposes?

I wanted to share the personal story of a woman I spoke with this month. While I will keep her identity private, I think others can benefit from hearing this story. It is important because it is through our experiences and the experiences of others that we learn. This is where we discover that theory sounds good and great, but application rarely matches theory.

This woman was convinced to take 350,000 equity out of her house, putting 175,000 into two life insurance policies that were supposed to provide growth and tax free retirement.

She ended up taking an interest only mortgage which switched after ten years to normal amortization. She ended up losing a big chunk from the life insurance policy, which didn't quite return what was implied by the hypothetical. Now, she doesn't even consider it as an asset. On top of that, now that the regular amortization hit, she is having trouble affording the payments.

Her mortgage is far from paid off and she is considering moving from the area, being only two or three years away from retirement.

Moral of the story. Only take money out from your home for an active business venture. This does not include home improvements or passive investing. It only includes jump starting a life long dream where you are actively involved in decisions and the direction of the business.

If you are considering whether or not your business venture qualifies for taking equity out of your home, consider Jim Collin's book from Good to Great, where he states that your purpose is the intersection of your passion, potential and profit.

This post was reposted from http://finlit.biz/estate-planning/should-you-pull-equity-from-your-home-for-investment-purposes/, originally written on August 9th, 2014.