Advice on what to do with my equity?
"How will 45K-60K ""end up in your pocket""?  Are you selling your home?  Where are you going to live?  You talk about moving to Arizona, what is so magical about that place? Congratulations on making a wise purchase.  Some people with new found money use it to correct past mistakes.  However, if they do not change their behavior they end up in the same situation just less them money they once had. While 50K income is respectable at your age, it is below the national average for households.  One factor in having a college education is those with them tend to experience shorter and fewer periods of unemployment especially for males.  Nothing will ever replace hustle, however.  I'd ask you to have a plan to raise your income.  Can you double it in 5 years?   You need to get rid of the revolving debt.  Do that out of current income.  No need to touch the house proceeds for something so small.  Shoot for 9 months. Then you need to get rid of the speeding fines and the vehicle loan.  That is a lot of vehicle for your income.  Again, I would do that out of current income or by selling the vehicle and moving to something more inline with your income.   As far as to moving or flipping foreclosures that is more of a question that has to do with your hopes and dreams.  Do you want to move your children every 3 years?  What if you move to Arizona and it turns out to be quite horrible?  You and your wife need to sit down and discuss what is best for your family." What to do with your equity?  Leave it alone...
Are you trying to figure out if a project would increase the market value of equity?     I think your issue is that the Market value of Equity will not be updated with the NPV of 40M (Assuming it is truly +, not sure if it's true with 50M of debt).      EV = Market Value of Equity + Debt - Cash and CE   Ev - Debt + Cash and CE = Market equity value.     So I think you would have to update the market value of Equity up with 40M. This would then lead to EV = Equity Value + future income stream discounted + debt - Cash and Cash Equivalents. Most important: Any gains you make from risking this sum of money over the next few years will not be life changing, but if you can't afford to lose it, then losses can be. Rhetorical question: How can you trust what I say you should do with your money? Answer: You can't. I'm happy to hear you're reading about the stock market, so please allow me to encourage you to keep learning.  And broaden your target to investing, or even further, to financial planning.  You may decide to pay down debt first.  You may decide to hold cash since you need it within a couple years. Least important: I suggest a Roth IRA at any online discount brokerage whose fees to open an account plus 1 transaction fee are the lowest to get you into a broad-market index ETF or mutual fund. yes, i am incorporating monte carlo return scenarios for both equity and real estate.  yeah there is a lot to consider in the case of the property being a condo where you have to account for property taxes as well as condo fees.   the two projects have entirely different considerations and it's not like the money that is injected to one is similar to the other (very different) which is why i figured there should be differing discount rates.  in any case, thanks for the discussion and suggestions. Both are close, but two notes - amiable or not, I'd rather have a deal that ends now, and nothing is hanging over my head to get or pay money on a future sale.  401(k) money is usually pre-tax, so releasing me from $10K of home equity is of more value than the $10K in a 401(k) that would net me $7K or so.  As I commented to Joe, I'd focus on valuation. If your house is similar to those in the neighborhood, you might easily value it. If unique, the valuation may be tough. I'd spend a bit on an appraiser or two. I agree with the other comments that you should not buy/hold your company stock even if given at a discount. If equity is provided as part of the compensation package (Options/Restrictive Stock Units RSU)then this rule does not apply. As a matter of diversification, you should not have majority equity stake of other companies in the same sector (e.g. technology) as your employer. Asset allocation and diversification if done in the right way, takes care of the returns. Buying and selling on the same day is generally not allowed for ESPP. Taxation headaches. This is from personal experience (Cisco Systems). I had options issued in Sept 2008 at 18$ which vested regularly. I exited at various points - 19$,20$,21$,23$ My friend held on to all of it hoping for 30$ is stuck. Options expire if you leave your employment. ESPP shares though remain. Morpheus, I think you are approaching this question the wrong way. The interest rate is not the most important consideration; you also need to consider the other characteristics of the investment. Money in a bank account is very liquid; you can do anything you want with it. Equity in a house is very illiquid; it is hard and expensive to access. Let's say you have $25,000 to either go towards a bigger downpayment or to invest. What happens if you lose your job? If you have $25,000 in the bank, you have a lot of flexibility; you can pay a mortgage for a number of months, or you could use it to relocate. If you put the money in the house, you cannot access it at all; without a job you can't refi or get a home equity loan. Your only recourse would be to sell the house, which might not be possible if there are systemic issues (such as the ones in the real estate crash). Even if you can refi or get a home equity loan, you will have to pay fees. My advice is to put the money somewhere else. If your term is long (say, 10 years or so), I would put the money in an index fund. I would contribute this money to the deposit, but wouldn’t pay anything else-more, and want to know if they do the house up, and it increases in value how does my share gets worked out if I want it out in about l0 years? This can be simple; You have contributed 9K out of 260 K. You own Approx. 3.4% of equity in the house. Whenever this gets sold, you will get back 3.4%. Now the real trick comes in, if the house is not being sold, ie your Sister would continue using it, and you want out, then one would need to decide the fair market value. You could agree to consult some lists or agree of the fair value based on sale price of similar properties in the area. This is where it normally gets difficult and can cause disputes. we do not have much money for solicitors / lawyers, and we don't really really need them It is advisable to get a lawyer as one doesn't know what happens 10 years in future, things may go wrong between you and your sister, or your sister is no more and her fiancé  may not honor the agreement you have. There are other considerations;   It would be advisable you have your name on the property. It would help from Tax point of view in future. If you are not having your name on the property, then the money you are giving would be loan or gift and needs to have the right paper work If its a gift you can't have it back. Your sister would have to make a gift back to you later whenever you want out. So it can really be complicated and it would be worth the money you spend on lawyer I would just like to point out that the actual return should be compared to your down payment, not the property price. After all, you didn't pay $400K for that property, right? You probably paid only 20%, so you're collecting $20K/year on a $80K investment, which works out to 25%.  Even if you're only breaking even, your equity is still growing, thanks to your tenants. If you're also living in one of the units, then you're saving rent, which frees up cash flow. Your increased savings, combined with the contributions of your tenants will put you on a very fast track. In a few years you should have enough to buy a second property. :) "The part that I find confusing is the loan/stock hybridization.  Why would the investor be entitled to a 30% share if he's also expecting to be getting paid back in full? This is the part that's making me scratch my head.  I can understand giving equity and buying out later.  I can understand giving equity with no expectation of loan repayment.  I can understand loan repayment without equity.  I can even understand collateralizing the loan with equity.  I can not understand how ""zeroing out"" the loan still leaves him with a claim on 30% of the equity. Would this be more of a good will gesture as a way to thank the investor for taking a chance?  Please forgive any naivety in my questions." Wow! First, congratulations! You are both making great money. You should be able to reach your goals.  Are we on the right track ? Are we doing any mistakes which we could have avoided ? Please advice if there is something that we should focus more into ! I would prioritize as follows: Get on the same page. My first red flag is that you are listing your assets separately. You and your wife own property together and are raising your daughter together. The first thing is to both be on the same page with your combined income and assets. This is critical. Set specific goals for the future. Dreaming and big-picture life planning will be the foundation for building a detailed plan for reaching your goals. You will see more progress with more sacrifice. If you both are not equally excited about the goals, you will not both be equally willing to sacrifice lifestyle now. You have the income now to be able to set yourselves up to do whatever you want in 10 years, if you can agree on what you want. Hire a financial planner you trust. Interview people, ask someone who is where you want to be in 10 years. You need someone with experience that can guide you through these questions and understands how to manage your income stream. Start saving for retirement in tax-advantaged accounts. This should be as much as 10%-15% of your income combined, so $30k-$45k per year. You need to start diversifying your investments. Real estate is great, but I would never recommend it as this large a percentage of net worth. Start saving for your child's education. Hard to say what you need here, since I don't know your goals. A financial planner should assist you with this. Get rid of your debt. Out of your $2.1M of rental real estate and land, you have $1.4M of debt. It will be difficult to start a business with that much additional debt. It will also put stress on your retirement that you don't need. You are taking on lots of risk here. I would sell all but maybe one of the properties and let it cash flow. This will free up cash to start investing for retirement or future business too. Buy more rental in the future with cash only. You have plenty of income to do it this way, and you will be setting yourself up for a great future. At this point you can continue to pile funds into any/all your investments, with the goal of using the funds to start a business or to live on. If all your investments are tied up in real estate, you wont have anything to draw on if needed for a business opportunity. You need to weigh this out in your goal and planning. What should we do to prepare for a comfortable retirement and safety You cannot plan for or see all scenarios. However, good planning will give you more options and more choices. Investing driven by fear will set you up for failure.  Spend less than you make. Be patient. Be generous. Cheers! Equity means having ownership, and I think that's a REALLY bad idea in the scenario that you described.  If you stay together, there's really no upside to either of you in this scheme.  If you break-up then you'll have a terrible mess, especially if the break-up goes badly.  If she's really building equity, you're going to be faced with several hard questions: If this went bad at the end, it might be worse than a divorce in some sense since at least in the divorce you have established law to sort out the issues.  You'll be on your own here without a formal contract. (Marriage being a special case of a contract for our purposes here.) If she wants to share costs (which seems perfectly fair) then agree to rent and a split on utilities.  If you really insist on going down the path that you described, I think that you'll need some sort of contract, which probably involves a lawyer.  Anything short of that could not be considered having equity at all and will be completely unenforceable in the event of a bad break-up. (There is some notion of a verbal contract, but that's very hard to prove and subject to misunderstanding and misremembering.) Aside from all of these potential problems in event of a break-up, you would probably also be violating the terms of your mortgage, if you have one. From the bank's perspective, you are selling the property that is the collateral for that loan, which you're almost surely not allowed to do. This is great, thank you. Can you think of any cases where expected return is greater than interest payments (like in #2) but the best choice would still be raise money through equity issuing? My intuition tells me this may be possible for an expensive company. "Once again I offer some sage advice - ""Don't let the tax tail wag the investing dog."" Michael offers an excellent method to decide what to do. Note, he doesn't base the decision on the tax implication.  If you are truly indifferent to holding the stock, taxwise, you might consider selling just the profitable shares if that's enough cash. Then sell shares at a loss each year if you have no other gains. That will let you pay the long term gain rate on the shares sold this year, but offset regular income in years to come. But. I'm hard pressed to believe you are indifferent, and I'd use Michel's approach to decide.  Updated - The New Law is simply a rule requiring brokers to track basis. Your situation doesn't change at all. When you sell the shares, you need to identify which shares you want to sell. For older shares, the tracking is your responsibility, that's all." There might just not be anything useful for you to do with that 'value'. As others mentioned, HELOCs have their risks and issues too. There is no risk-less way to take advantage of the value (outside of selling) It is similar to owning a rare stamp that is 'worth a million' - what good does it do you if you don't sell it? nothing. It is just a number on a sheet of paper, or even only on some people's minds. "I don't know if it's common or necessary to include capital stock as a liability? Yes, if you look at the title of the nonasset part of the balance sheet it actually is titled ""Liabilities and Shareholders' Equity"".  Your capital stock is a component of Equity.  This sounds like it was reported in a reasonable manner. ""$2,582 listed under Loans from Shareholders (Line 19)."" Did you have a basis issue with your distributions?  That is did you take shareholder distributions more than your adjusted basis that you have been taxed on?  I have seen the practice of considering distributions in excess of basis as short term loans to prevent the additional taxation of the excess distribution. Be careful when you adjust this entry, your balance sheet had to roll from one year to the next.  You must have a reasonable transaction to substantiate the removal of the shareholder loan."