House rich, cash poor is when you have a lot of equity in your house but not a lot of cash. For whatever reason, a homeowner has untapped equity in their property but is unwilling or unable to withdraw it. Due to excessive spending habits or financial responsibilities, the homeowner feels poor.
After paying for my house in cash, I am the very definition of house rich, cash poor. Within my house-buying framework, I stretched to buy the nicest house I could afford because I've only got 14 years left until our youngest leaves the house.
Mainly due to two unexpected capital calls totaling $40,000 from one of my venture capital funds, I am scrambling to come up with the cash. If I don't meet the capital calls, I will probably be blackballed from participating in future funds. I can't let this happen since this is a tier 1 firm where I plan to invest in every vintage for the next 10+ years.
Because I sold a lot of stock to pay for my house, I'm trying to rebuild my stock portfolio as quickly as possible, not further drain it. In addition, I don't want to pay any additional capital gains tax this year. As a result, I've got to find a way to get cash-rich again!
Why People Feel House Rich, Cash Poor
According to one Hometap homeownership study, it showed that 73% of people feel house rich, cash poor at least some of the time. The reasons are likely due to:
- Taking on too big of a mortgage
- Having an adjustable mortgage rate that reset higher
- Buying too expensive of a house (although you get to avoid bidding wars if you move higher on the price curve)
- Living an unsustainable lifestyle
- Losing a job
- Experiencing an unexpected financial emergency
In my situation, I experienced unexpected capital calls due around Christmas. Not only are the capital calls unexpected, at 10% of my total commitment each, they are also five percentage points higher than normal. I've really got to do a better job at managing my future capital calls.
Another Example Of How House Rich, Cash Poor Works
Let’s say you and your spouse bought a house in San Francisco in 2019 for $2,400,000. The pair of you made a 20% down payment, meaning that the total of your mortgage loan was $1,920,000. With an interest rate of 4% on a 30-year loan, your total monthly mortgage payment is $9,166 per month.
Given your household earns $30,000 gross a month, your monthly mortgage payment is affordable. Four years later, your house is worth $2,800,000, making both of you house richer. However, unfortunately, y'all decide to get a divorce due to irreconcilable differences.
Rather than choosing to sell the house, you agree to pay $380,000 to buy out your partner with your savings and investments. Although you now have $880,000 in home equity, you're left with only $15,000 in savings. You are cash poor, house rich.
A precarious financial situation with a potential solution
Now let's say you make $20,000 a month, which means 46% of your gross income is going toward your mortgage payment. If you lose your job, you are screwed because you only have one-and-a-half months of living expenses before you completely run out of money. As a result, you're extra nice to all your colleagues and work an hour longer a day to enhance your job security.
Luckily, you have a backup plan!
You met someone at work who you fancy. Within three months, you hope they will move in with you and help pay rent to the tune of $2,800 a month. It's a great deal for them because they are living in a one-bedroom apartment for $3,800 a month. Now they can move into a four-bedroom house with a backyard.
Don’t forget to tell HR about your inter-office romance.
What To Do If You're Feeling House Rich, Cash Poor
House rich, cash poor is the term used to describe a homeowner who has equity built up in their home but is burdened by expenses that eat up most or even all of their budget. While they have untapped equity in their property, they are unable to access it. Meanwhile, their lifestyle or personal debt grows at an unsustainable rate.
Here are some ideas to feel cash rich again. Depending on the financial emergency, some ideas are better than others.
1) Take out a home equity line of credit (HELOC)
I would be disinclined to take out a HELOC because the rates are generally 1%+ higher than an average mortgage rate. However, if you need to pay some important bills, taking out a HELOC is a solution.
Qualifying for a HELOC depends more on your home equity than your credit score. As a result if you are house rich, getting a HELOC should be easier than doing a cash-out refinance. That said, since the global financial crisis, many banks have stopped issuing HELOCs so it may not be an option.
2) Do a cash-out refinance
Doing a cash-out refinance is also not a great solution given the cost and time it takes to complete one. The entire process could take two-to-three months and cost between $2,000 – $10,000, depending on the size of the cash-out.
If you expect your cash crunch to improve on its own within a year or two, a cash-out refinance could be a costly mistake.
3) Reduce your extra mortgage principal payments
You may have set an automatic mortgage payment a while ago to pay extra principal each month. Adjust the mortgage payment down to the exact mortgage payment to raise liquidity. The new payment should begin in the next pay cycle.
We did this with one rental property where we have a $2,814 mortgage, but were paying $4,500 each month for the past five years. It felt good to reduce the payment to $2,814 when rates went up because the mortgage rate is only 2.65%. We felt cash richer a month later.
4) Search your taxable investment portfolios for idle cash
You may be surprised and find thousands of dollars of idle cash sitting in your taxable investment portfolios. Some of it may have come from cash you forgot to invest. Some of it may also be from dividend or coupon payments that were not reinvested.
5) Slash your discretionary spending and go on a spending fast
If there's ever a time to spend less on food, it's when you're cash poor. Eat less, spend less, lose weight! What's not to love?
Instead of driving so much, take public transportation. Cut all extraneous expenses such as the premium cable package, monthly massages, ballgame tickets, drinks out, premium gas, food delivery, and other entertainment until you feel cash rich again.
Read one of the many books lying around for entertainment, including Buy This Not That. The slower the reader you are, the better entertainment bang for your buck.
By altering your financial habits to be more frugal, you will feel less house rich cash poor because you’re heading in a positive direction. Get your entire family on board and make it a game to see who can be the most frugal the first 1-3 years after buying a home.
6) Pick up a consulting job or second job
Nothing cures being cash poor than making more money quickly. There are endless gig economy jobs one can pick up through TaskRabbit, ridesharing, teaching, consulting, and more. If you are an able-bodied person, the only limiting factors to you generating side income are your pride and effort.
Back in 2015, I had three concurrent consulting jobs at startups paying $10,000 a month. It only lasted for three months, but it showed me what was possible if I put myself out there. With work-from-home now more common, there are some people working two full-time jobs!
I also gave over 500 Uber rides, making me around $35/hour at the time. 20 hours a week generated an extra $700 in income. That's enough to pay for food, entertainment, and transportation.
7) Tax-loss harvest
If you have some capital gains, then you may want to conduct some tax-loss harvesting to offset those capital gains taxes and raise cash. A two-for-one special if you will. You may also want to sell your perennial underperformers to rid your portfolio of such blight.
8) Borrow money from a family member or friend
As a last resort to overcoming your cash-poor situation, consider borrowing money from your parents or siblings. Tell them that it's only a bridge loan and that you'll pay them back as soon as you replenish your liquidity.
I hate borrowing money from my parents. But I've done so before and paid them back with market-rate interest. Funny enough, I am more than happy to lend or give money to my parents or sister if they need some. They've just never asked.
The bad feeling of borrowing from a family member may negate the good feeling of feeling less cash poor.
9) Use a credit card as a bridge loan
If you have too much pride and honor to borrow from a family member, it may be better to borrow from your credit card or pay for the upcoming expense with your credit card. This way, you are privately solving your financial problems.
Unfortunately, credit card interest rates are egregiously high. If you go the credit card route, try to pay back the revolving loan ASAP. If you do after a month or two, even an average credit card interest rate of 22% won't be that painful.
I Hate Feeling House Rich, Cash Poor
I love my new house. Climbing to the top of the property ladder provides a lot of satisfaction as a father. However, I hate being cash poor. I haven't felt this way since 1999, my first year of work in New York City.
At the time, I earned $40,000 a year and contributed $10,000 a year to my 401(k). After taxes and retirement contributions, I didn't have much discretionary income given rent was so high.
Thankfully, feeling cash poor didn't last longer than a year because my income rose steadily while my expenses stayed flat. Due to the uncomfortable feeling of not having much money leftover each month, I was determined to save as much as possible. The more I saved, the richer I felt.
If you’re one of the 73% percent of homeowners who feels house rich, cash poor at least some of the time, you may want to reconsider your lifestyle. Most of the solutions I've offered above are just temporary solutions to get you out of a cash crunch.
Instead, reduce your discretionary spending to the barebones until you replenish enough funds where you no longer feel cash poor. This may take three months, or three years.
Make a realistic assessment of your income trajectory. If it's looking stagnant, then all the more reason to tighten your budget. Even if you see tremendous income upside, the key to financial freedom is growing the gap between your income and spending for as long as possible.
A Return To House Rich, Cash Rich
Personally, I plan to sell some Treasury bonds before maturity to pay for my $40,000 capital call. I view it as a forced asset shift from risk-free to more-risk exposure. Although I lose my risk-free income, I've got no other choice due to a lack of liquidity.
In addition, I plan to live more frugally for the next six months in order to boost my cash reserves. I'm going to make spending less a game with my wife. We're going to sell and donate unused items, eat more leftovers, and slash all discretionary spending.
In terms of generating more income, I will get a consulting job and rent out or sell my old house in the new year. I can't have my old house sit empty like some corrupt foreign government official laundering money in America.
Being house rich, cash poor is no way to live forever. The challenge to become cash rich again is on!
Real Estate Suggestions
Instead of dumping a bunch of cash into physical real estate, you may be better off dollar-cost averaging into Fundrise instead. Fundrise offers diversified real estate funds mostly investing in residential or industrial properties in the Sunbelt region. As mortgage rates decline, demand for real estate should pick up. Fundrise is a long-time sponsor of Financial Samurai.
Another great private real estate investing platform is Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside due to higher growth rates. You can build your own select real estate portfolio with Crowdstreet, but more due diligence is required.
I've personally invested $954,000 in private real estate since 2016 to diversify my holdings, take advantage of demographic shifts toward lower-cost areas of the country, and earn more passive income. We're in a multi-decade trend of relocating to the Sunbelt region thanks to technology. Financial Samurai is an investor in a Fundrise fund.
Disclosure: Fundrise is a long-time sponsor of Financial Samurai and Financial Samurai is an investor in Fundrise funds. Financial Samurai only works with the best companies that can provide the most value to its readers.
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That’s so nice of you to write an article about me.
Growing up my parents were House Poor, Cash Poor. They always bought bigger and nicer homes than they probably should have. They made the monthly mortgage payments and did not accelerate any equity since they had no extra money left over. They did make money when they sold the house, but then turned around and put in into another too expensive house for their means.
Fascinating that they use the proceeds to buy an even more expensive house, assuming you were already out of the house and living on your own. Why do you think they did that?
I feel the best time to own the nicest highest one can afford as when their kids are at home. And I don’t think I will want to upgrade to an even more expensive house or a larger house once my kids are out of the house. But am I missing something here?
All the reasons for this that you listed are negative, but my reason for being house rich, cash poor is 100% positive:
– Paid $210k for a house that appraised day 1 for $275k
– Spent ~$50k on renovations
– Recent appraisal put it north of $350k
– Mortgage rate of 2.75%
There’s not a lot to do. Refinancing would be silly. Selling would be silly unless the deal was really, really good.
So, house rich, cash poor, all for good reasons.
I’m surprised that you don’t talk about using 0% balance transfer offers with 3%-5% fees, or introductory 0% APR offers with cash back and lengthy promo terms like 18-21 months.
Citi is great for balance transfers because the user can transfer the funds to a bank account. Some banks offer similar methods or blank balance transfer checks.
Also, putting daily spending on a credit card with cash back and then holding the cash in a 5% high yield savings account will compound, plus the user can allocate cash to pay off older cards before their promos expire so balance transfers are not always needed to keep the promo rate going.
Hi Sam! I am also house rich cash poor!
We closed last week on a condo in SF that was 20% below the neighboring one that sold in 2021. No competing offers. It is stunning! We had plans to try to get back to the bay area after being away for 17 years raising our kids in Colorado. The market proved irresistible to us and we moved up our timeline, kind of. We still have our first home where we will stay for the next few years until we can move our base back to the city. I am so excited!
I am a financial samurai fan girl – I have negotiated a severance, wrote a real estate love letter, had side jobs, geo-arbitraged, the list goes on… I haven’t had the courage to retire but me and my husband have found ways to stay working from home for the last twenty years so that counts. We’ve got all three kids in college so we’ve got to stick it out for a few more years.
I’ll give you an alternate view: Lean in to feeling cash poor. I know I am financially fine barring a black swan event. I appreciate your list and hopefully I don’t need to deploy too many things. Being house poor has lit a fire in my belly that I haven’t felt in a long time! I almost feel young again :) I’m going to hustle in 2024.
On an unrelated note, given we have kids in college, we have two “kiddie-condos”. One we co-own with another family and one we purchased ourselves. While college kid as renters can seem scary, it makes a ton of sense when it is your own child. Rents in college towns are $1000-$1500 / month / room, sometimes for a shared bedroom. I’d love to see you write about this some day as I bet a lot of your readers with older kids have gone this route.
The Fire community is changing…..I was so excited about Econome after listening to the latest episode of ChooseFI but when I went to sign up I got so frustrated. Half a grand for the conference? Really? Once more I realize that the old frugal days of the FIRE movement is over and now it’s about showing off what they call “quality of life” and “value spending”. I feel like this is not my community anymore! Where are those who seek FIRE through hard savings and living WELL below their means? Frugals and minimalists? It seems everyone in the community is already at fat FI/a multimillionaires w/ their Teslas, and we beginners or struggling low middle class are left out once again! Sorry about the rant but I wish so badly I had a place in this community.
Thanks for sharing your frustration. There are definitely some people in the FIRE community who want to make a profit, it’s only natural. But it also begs the question, if you are truly financially, independent, why are you trying to profit from FIRE?
Starting a conference and running a conference takes a lot of work. And the expenses are higher as well. So even at $500 a ticket, I’m not sure how much profit the conference organizer is making. But conferences are pretty fun and you can make great connections.
After attending a couple of conferences myself about 10 years ago, I haven’t gone back to other priorities. And now that I think of it, I think I got my tickets for free because I spoke at panels. Spending more than two or $300 for a conference is too rich for my blood.
Related: The Fundamentals And Criticisms Of FIRE
You fit into the FIRE community. However, you are at the beginning of your journey where as those you reference are the end product. Don’t get frustrated with them, view them as role models. You too can achieve what they did by keeping to the FIRE principals. If that doesn’t help, realize that the only FIRE community you truly need is between you and your financial accounts.
I too feel this every time I listen to a podcast or read something on the current FIRE blogs. Especially after that hideous book “Die with zero” people are just not FIRE anymore, they just want to live a good life…but they don’t realize 90% of their listeners are just starting…so frustrating!! I hear you Mary
This is good feedback for me to keep in mind for future writing. Although I did help kickstart the modern day FIRE movement in 2009, I don’t incessantly write about trying to achieve financial independence. Part of the reason why is there’s only so much to talk about and once you achieve financial independence, your interest focuses elsewhere.
Try listening to “Catching Up To FI” podcast. It’s hosted by two individuals who were late in their careers when they realized they had minimal retirement savings and were in trouble until they learned about the FIRE movement. I think their story and perspective working towards FI more closely aligns to the experiences of the majority in this country.
Good read and very true! In the event you’re looking at HELOCs, PenFed Credit Union and CalBank and Trust were good options for Non-Owner Occupied Rentals. Prime + 1/1.5. Keep up the great content, I’m sure you’ll build your cash position again in no time.
Good move to sell some bonds. You loaded up on them over the 2 years, right? That was a good move.
Would slashing discretionary spending make a dent? At your level, it probably wouldn’t change anything.
I feel like we’re always cash-poor. We channel most extra money into investment. There isn’t a lot of cash in our bank accounts.
I’ve been buying Treasury bonds since mid-2022. They’ve been a nice stable income source for sure. Gave me options for a big ticket purchase if one ever came up. But I’m also sad to no longer earn as much risk-free Treasury bond income.
Feeling cash poor by always investing is a good thing! Good to treat investments like expenses.
Couple things:
The LPA will describe the penalties for being a defaulted investor – they are very GP aligned and u really don’t want to default. I live in this world. Capital calls are real things and they will come fast and furious until u build a self funding portfolio. And even the. U need bridge liquidity.
Liquidity Access Lines are great to borrow against investments.
I hate being over equitized in my house, always wanted excess liquidity and now that I have it – I want the leveraged exposure to RE
Fundrise is just not for me, whether VC RE or otherwise. They are bottom of the funnel. Not saying what you are doing is wrong, but not for me.
Did I say again liquidity is always key if u invest in privates! I have 20 percent of my NW in private funds that have capital calls.
Thanks for sharing. What type of net worth level are you rocking?
More than 10, less than 50
Yes I know, but still have some left in the tank. Give me 3 years lol
Alrighty. Good luck on the 50 mil! Let me know how your life changes, if any if you get there.
Always happy to answer anything about privates, whether private BDC, private REIT, GP/LP vehicles across any asset class, evergreen vehicles, hedge, FoF or otherwise. As both an investor and individual whose job is to cover the universe from a BB role.
Hi Sam. I’m wondering how many people can relate to #3. I know a lot of people who add principal to their mortgage payment…but not nearly to the level that you were. You added $1,685/mo, a 60% bump equating to an additional ~5 payments per year. I doubt very many people are doing this but would love to know if they are. Further, it appears to me to be a strictly emotional decision to put $20K+/yr additional paydown on a loan at 2.65%…and contrary to what you would normally suggest for your readers. Am I missing something?
I would say don’t get fixated on the dollar amount more going to paying off principal. Focus simply on the fact that if you’ve been paying down more principal automatically, you have room to cut to improve cash flow.
Obviously, if the mortgage rate is low or you’re in a negative real interest rate environment, it’s less beneficial to pay down principal.
I decided to pay more when I had higher cash flow. Now I pay less because I have lower cash flow. Adaptation is key!
Yes. Purchased a 500K home (345K mortgage) in ‘06 with a family income of 69K. Looking back, not sure how we pulled that off considering what lifestyle inflation has done to our spending since. Wish we could return to those ultra-low spending days for a while but it surprisingly hard to do. Perhaps we should do a significant home upgrade to feel house rich, cash poor again in order to reign in spending. Have our eye on a new build (2.1M) that would require about a million dollar mortgage in about 12-18 months. Would need to sell current home to make it work. Seems a bit scary but doable. Interest rates and SALT limitation seem to be the biggest barrier. Trying to figure out how much we could save in the next 12-18 months in addition to selling our existing home in spring ‘26.
7X household income is big! Guess the banks lending felt y’all worth creditworthy enough.
It feels fun to have a savings goal doesn’t it?
The thing with homeownership is that it always tends to feel tight and a little scary for the first 1-3 years. But after 3 years, the cost doesn’t feel like a lot anymore. So homebuyers just have to get through the first 3 years.
Crazy lending practices back then, hence the bubble. Psychological barriers to face for sure, Sam! The thought of a 1M+ mortgage is a barrier with it no longer being the ideal mortgage for government subsidizing lifestyle and with the higher mortgage rates and the SALT limitation. The hope would be rates drop a lot by spring ‘25 and SALT limitation goes away by ‘26. Taking one more big risk seems a bit exciting though honestly after things become comfortable financially. I like to think I’m worst case scenarios. I would hope that worst case, we would just sell it if we buy off more than we can chew.
I think the obvious thing to do here is to sell your physical real estate holdings and put the cash to work. I’m seeing 4 bedroom 3 bathroom apartments for $4,000/month in San Francisco, you could pay for that with the yearly return on a $1M CD.
Indeed. The problem is I have renters (good ones) and I’d have to pay commission to sell. So I just keep it rented.
I am so house poor right now. I just bought a place “Cash” in Mexico City. And by Cash, I mean I put $60,000 into it, and took out personal loans for the remaining $120K. So the monthly payments on those personal loans is about $2,900/month, but will be paid off in 5 years. In the meantime, though…NOT FUN.
I’m going to see if we can get creative and get my husband to get a mortgage on that, as he’s Mexican. (Tough to enter and get financing as a Gringa… not impossible, but lets say terms were very expensive.) Additionally, I own 11 more properties in the USA, all bought within the last 5 years, and with between 3.5%-20% down. I think it’s not enough for a HELOC at this point.
Soon it might be time to sell a unit to pay down other bills (yes, I also had a wedding during that time). But for now I’m seeing how quickly I can pay off the bills with my “surplus discretionary” income.
Yes, Not Fun at all. But if you’re paying it all off in 5 years, that’s great!
I hope your properties treat you well and cash flow. 11 properties in the last 5 years is 7 more than I can comfortably manage for my sanity.
Not to scare you, but 3.5% rate does not exist in Mexico, not even in our wildest dreams. Expect rates over 10%. but for being Mexico City, the price sounds quite good, as there are some very surprisingly crazy prices over there. Best of lucks
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Thanks for helping me feel less cash poor.
Thank you!
No problem. If you could drop a podcast review on Apple and BTNT on Amazon if you read it, I’d appreciate it.
I have been house-poor twice. Once, when we bought a lot to build a new home, we still owned our existing one and wanted to live in it while building. We felt poor and stressed for over a year, even though we made more money than ever. I also went through a period over a couple of years with my rental properties where I needed to completely remodel two units between tenants, replace a roof, and repair damage caused by a broken pipe and storm damage, both costly repairs but just under the insurance deductible. I used a line of credit and played the credit card game with 0% interest cards. Minimizing interest payments for the remodeling and repairs was nice, but carrying so much credit card debt as a debt-adverse person was also hugely stressful. Now that I’m older, I’m no longer willing to take on things that cause stress: no more new builds or new rental properties.
I hear you. The stress is OK when younger. But as we get older, we just want peace.
I hope to feel cash rich again within one year.
“Within three months, you hope they will move in with you and help pay rent…” this scenario cracked me up haha.
Great article! I personally won’t withdraw untapped equity unless it’s to buy more real estate. So I’ll stay house rich/cash poor for a bit longer.
The older I get the more I value being cash rich over house rich, but at this time don’t see a way around getting to cash rich without being house rich first.
Gotta have faith in love!
Hi Sam, good article. We were in this situation earlier in our lives. We didn’t know then what we know now about how much house we could afford. Things were very tight. We ended up moving cities and buying a less expensive house. Unfortunately this was in the 1990s before they changed the rules for homeowners who sell, so we had to pay some capital gains.
Fast forward to today. When we moved to where we are now, we bought much less house than our income said we could afford and we paid our mortgage off quickly. At this time in our lives, we consider our home an asset for whichever of us outlives the other to help pay for end of life care.
The good thing about when money is tight is that we adapt accordingly and make it work. When things inevitably get good again, we then feel rich!
Yes I agree practically everyone feels this way at some point. Unfortunately my mother has been house “rich” cash poor from her 30s and well into her 70s. She bought too much and stubbornly refused to adjust her budget to accommodate. The result? She still has a six figure mortgage because she kept taking out HELOCs and then refinancing and consolidating her debt over and over and over again. I tried countless times to help her fix her ways but she stubbornly refused. At least her mortgage is less than the value of her house so eventually I’ll be able sell her house to close off her debts.