The difficulty of tapping equity of a shared home
Q: I'm 47 and make about $26,000 a year, with plans to add about $6,000 to that with a new small business. I have very little savings and realize it's late to start. Together with two family members, I own a home worth maybe $450,000. Its value is increasing greatly. What can I do to make the value of the house work now for me? Can I get a loan or money to invest until we someday sell the house?
Name withheld, via e-mail
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A: Borrowing on your house is tricky because of the ownership setup. If you took out a home-equity loan or line of credit, the other owners would have to agree. They would also be responsible if you didn't meet your obligations.
You could also try to borrow from a friend and give him or her a second trust deed as collateral. The other owners would still need to agree and, depending on the state where you live, their exposure in the event of a default may not be limited.
As for saving, you still have 20 or more years of work life to catch up, says Phillip Cook, a certified financial planner in Torrance, Calif. Set specific money goals, he says. Wanting to be comfortable when you retire isn't specific enough a goal. Wanting to retire in Costa Rica at age 65 with $1,500 monthly income from your investments is more like it. To get there, Mr. Cook says you'll need to make a budget and stick with it. Once you accumulate some savings, build an investment portfolio.
Cook recommends mutual funds, since you can easily add to them every month. If you can do so in a tax-favored account, such as a Roth IRA or 401(k), all the better.
Q: I am currently incarcerated but nearing my release. I am a carpenter and entrepreneur. How can I secure a grant or loan to start a business upon my release?
D.M., Beacon, N.Y.
A: Pat Nolan, president of Justice Fellowship, which helps ex-inmates secure jobs in Iowa, Kansas, Minnesota, and Texas, has a hunch your parole officer - assuming you'll be on parole - will squelch any thoughts of entrepreneurialism. There's no easy way to keep tabs on somebody who works unsupervised or doesn't punch a time clock, he says.
But your carpentry skills may be the key to your success, he says. Demand is high for carpenters in much of the US. Working for a contractor not only would provide you with a paycheck and benefits, he says, but "if you find the right [employer], you'll develop contacts" for after parole, when you can implement your entrepreneurial plan.: