3 Tips to Avoid Becoming House Rich and Cash Poor in L.A.

In 2017, Los Angeles housing prices shattered records again, reaching previously unseen heights and eclipsing prices we witnessed in the run-up to the 2007 mortgage crisis. Most of the properties I sold last year wherein multiple offers. I sure you’ll agree that it’s easy to get excited about a new home especially if you’ve been getting your butt kicked in multiple offers and all cash fast close offers. Maybe you’ll overextend yourself in the heat of the moment?

Take a deep breath and make sure you’re working with an honest Realtor who is looking out for your best interest. After all, you don’t want to be the one who ends up house rich and cash poor. For starters, you can scrutinize your income and expenses. If your paycheck won’t allow for an increase in your housing allowance, then you might need to make some adjustments. Can you afford a down payment of 20 percent? You’ll most likely need to account for closing fees, home inspections, and other expenses as well.

It’s also important to keep in mind that even if you’re doing well as a homeowner, you shouldn’t make the mistake of thinking that you can always dip into your equity to use your house like you do a savings account. A HELOC, home equity loan or second mortgage shouldn’t be taken lightly. This was what got a lot of people into trouble during the golden age of real estate in the 00s. There are folks who are property heavy and have very little liquidity, who mistakenly assume that they are in good shape. But are they really? They feel more than comfortable about overleveraging while using their properties as collateral. Many overconfident individuals make high-risk moves, feeling that they’ve got a solid enough safety net in their real estate holdings based on future values. 

Many people also think of their homes as not just their largest asset, but as their ONLY asset. I don’t see this as good risk management at all, but surprisingly, it’s a position that many homeowners are happy enough to be in, says Joe Tishkoff.

Home ownership is a desirable goal because families need shelter and a place to thrive – we all get that. However, you should think twice if you’re taking on more debt than your budget can handle when you’re buying a new or bigger home. Being house rich and cash poor can impose limits that prevent you from taking on better investment opportunities or that distract you from paying off other debts. Buy smarter when it comes to real estate and don’t neglect to build up your cash reserves. The key to remaining solvent and stress-free over the long term is to have a balanced financial setup. Besides you have to treat yourself to dinner, a date night, or gifts once in a blue moon. You’re only human, after all.