If you own a home in a real estate boom market, you are

probably richer now than you ever thought you could be–on

paper. Even if your house is in a real estate market that's

rising more modestly, you may still be feeling pretty flush–on

paper. But is it possible to "cash out" your paper wealth?

Assuming you're living in the home you own (if you own

investment properties, stop reading this article now and just

go talk with a real estate broker or investment advisor),

you'll have to find new housing if you sell. That's the point

where most people stop thinking about "cashing out" their

home's equity. After all, if you'll just end up spending all

that money on another house, why bother?

The reality is that most homeowners can, in fact, "cash out."

For many homeowners, selling property really will be quite a

windfall. Not selling now might be the biggest financial

mistake of their lives. For some, selling would be an equally

bad idea. How do you know which came you fall into?

Selling Your Home: Three Options

If you sell your home then buy a comparable home in the same

market, you'll simply be losing money on the costs involved in

real estate transactions. There are, logically, only three

scenarios in which it would be possible to actually sell your

home and not lose your big money on buying another home–and all

of them are better ideas than you might assume:

1. selling then renting new housing

2. selling then buying more modestly priced housing

3. selling then moving to a less expensive market

4. Selling then Renting New Housing

Have you checked what rents are like in your community?

According to a recent New York Times article, in the most

price-inflated housing markets–most prominently, the Bay Area

of California, Boston, New York City, and Miami– renting is now

an indisputably better deal, at least in the immediate future.

When you add to the cost of buying a house such "hidden" costs

as property taxes, interest on a mortgage, real estate

transaction costs, and maintenance, owning can easily cost

twice as much as renting.

In terms of investment value, housing prices would have to rise

far faster than they are rising now for buying a home in an

overheated market to be anything but a money-loser for about

the next ten years, and possibly far longer. Given that buyers

are now stretching themselves thin to buy homes in the current

market, you have to ask: who will be left to buy homes if

prices actually do double? In the long term, San Francisco,

Boston, and Manhattan may compete directly with Hong Kong,

London, and other highly desirable cities in a virtually

limitless price war. For now, there aren't enough

multi-millionaires in any of these cities to keep prices going

skyward forever.

Of course, some markets are still good for buying your own

home. According to the New York Times, the cutoff point when

buying is more expensive than renting is roughly when it would

take more than twenty years' worth of rent to equal the sales

price. Chicago is the biggest market in which the Times says it

still makes sense to own rather than rent, at least if you're

staying longer than a few years. Meanwhile, if you're buying

the property as a long-term investment and will be renting it

out, the rent may very well be enough to make up for the costs

of owning.

2. Selling then Buying More Moderately-priced Housing

In the stock markets, you can manage your risk by selling some

of a high-performing stock in case it drops and keeping some of

it in case it goes higher. With housing, the closest thing to

hedging your bets is to trade down for a less expensive

property. Housing prices don't always follow people's tastes

exactly, so a less expensive house might actually be more to

your liking than your current home. A "less convenient" street

may also be less busy and therefore more quiet. Or, your home

might owe part of its market value to its proximity to public

transportation that you don't use anyway.

3. Selling then Moving to a Less Expensive Market

Moving to a less expensive market might seem like the least

practical way to cash out your home's equity. But don't rule it

out completely: you don't have to move to Nebraska, just to a

nearby market. Particularly if your job isn't close to home now

anyway, it might be easy to move from San Francisco to

Sacramento or from Boston to Providence.

Depending on your lifestyle, you could even combine some of the

options above. For instance, if you're retiring, you might sell

your home, spend extended stays in faraway cities you always

wanted to visit, and then return to rent or buy a smaller

"empty nest" apartment.

Of course, there are intrinsic benefits to home ownership, such

as the freedom to change the paint or have guests over whenever

you wish without checking your lease. Just don't confuse those

intangible benefits with economic ones. After all, you can't

pay the mortgage with intangibles.