I don’t usually pay much attention to the junk mail that I regularly get, but I received an email from Yahoo! Real Estate that had the subject: Use Home Equity to Finance Your Next Big Dream. With a subject like that, I just had to take a look. Clearly, we are all aware of the state of the economy, which is largely due to the declining real estate market that was fueled by aggressive lending and the combination of people borrowing more money than they could afford. So, I had to wonder what Yahoo! was up to.
Upon opening the email, you are presented with this nice ad that portrays a beautiful home with a pool:
Way to Go, Yahoo!
Well, where do you even start with an ad like this? The subject alone is bad enough, and it basically tells people that their home equity can be used to finance anything. Of course, they use the word “dream” and accompany it with a picture of a house that many people would love to have.
They also go so far as to call your home an investment by saying, “Discover how to make the most of your big investment.” Wasn’t this part of the whole problem to begin with? People jumped into buying a home when the market was hot thinking it was a good investment. Studies show that over the past 30 years, real estate has only averaged around 8.5% annual returns. Seems good, but after inflation, the costs associated with selling a home, and then the likelihood of buying a more expensive home with your profits, the net returns aren’t very good. A home is a place to live, first and foremost, and a possible investment second.
Also, how is converting the equity, or your gains, making the most of your “investment?” You’re taking money that you have made, at least on paper, and basically tacking interest on it. Sure, it is possible to strategically use that money to further enhance your home or have the potential to realize even more gains down the road, but this is far from a sure bet. I hardly see this as making the most of an investment, especially with current market conditions.
Turn Your Equity Into Cash!
And an advertisement like this wouldn’t be complete without stressing the fact that your equity, which is tied up in a hard asset, can be easily turned into cash. What wouldn’t appeal to a struggling homeowner more than being able to get seemingly free cash? Again, the use of equity in your home is being likened to treating it as a checking or savings account to free up money when you otherwise don’t have enough.
What do You Think?
Is it just me, or does an advertisement like this seem almost reckless? I realize that they are only promoting their real estate site, but they are doing it by targeting people who are looking for ways to make ends meet or need money to buy something they obviously don’t have money saved up for. I was used to seeing ads like this over the past few years, but to see something like this now, given the current state of the real estate market and economy, it is a bit surprising.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.