What is equity?

Question

A guy wants to me to buy a few houses and he takes the equity out then he sells the houses. It doesn't sound legal, is it?

Answer 1

Equity has no value until it is converted into cash. It is the difference between debt owed and marketable value. As to this arrangement you speak of it may be shady and you could be bearing undue risk. If you want to this equity skimming twist have a trusted attorney give you a legal opinion. Use a good real estate attorney for all agreements. Never quit claim ( releases your interest ) or quick claim ( adds him to title ) anything. A real potential risk is who will be responsible for loan fees, pre-pay penalties, and resale costs. If he takes 20 K equity out and the house sells for 30K more than you bought it for he could walk with the 20K and you might come up negative on your side of the split.

Answer 2

Equity is the value remaining for the owner after debts are paid.
So if a 100 000 home has an 80 000 USD mortgage. The owner has 20 000 equity.
He will sell it to someone for 100 000. He will keep 20 000 and the mortgage holder (bank) will get 80 000.
The new owner needs 100 000 to buy it. Often he gets this money by coming up with 20 000 of his own and borrowing the rest from the bank (a mortgage).
Another example would be that the same 100, 000 house is free and clear (no debt). The current owner can go get a mortgage for 80,000. He can then keep this 80,000 for whatever he wants. Then he can turn around and sell the house to someone else for 100,000. In this way he does not have to wait to get some immediate cash. (of course he has to pay monthly payments to the bank until the mortgage is paid off)

Answer 3

Equity is the difference between what is owed on the property and the value of the property. If you owe 100k on your property and it is worth 150k then you have 50k worth of equity.

Answer 4

the monetary value of a property or business beyond any amounts owed on it in mortgages, claims, liens, etc.