How To Tell If You’re Asset-Rich, Cash-Poor (And What To Do If You Are)

An asset-rich, cash-poor woman counts coins and inspects credit and debit cards on a kitchen countertop.

Key Takeaways

  • “Asset-rich, cash-poor” means that you have locked most of your wealth in assets, like real estate, that are difficult to convert into cash.

  • Both assets and cash can be good investments. Ideally, you want a balanced portfolio with liquid cash in the bank and strong assets that are likely to appreciate over time. 

  • If you’re short on liquid cash, you can tap into your home equity – the portion of your home that you own – using a home equity loan, home equity line of credit or home equity agreement.

The phrase “asset-rich, cash-poor” has gained popularity in recent years. 

But what does it mean, exactly? More importantly, what does it mean if this is you?

Let's find out.

What does “asset-rich, cash-poor” mean?

Contrary to popular belief, being asset-rich, cash-poor doesn’t mean you’re broke. It only means that you have tied most of your wealth into assets – often real estate – that are relatively difficult to convert into liquid cash.

For example, if you own your home and a rental property, but only have one savings account with a few thousand dollars in it, you’d be asset-rich, cash-poor. You don’t have a lot of cash on hand, and converting your assets into cash by selling them is likely to be time- and effort-intensive. 

In contrast, when you’re cash-rich, you have a large amount of readily available funds – such as money in a bank account or an easily convertible asset, like stock – that you can use whenever you need.

Just because an asset is expensive and easy to liquidate doesn’t mean it’s a strong one. For instance, cars and electronics may be costly in the short term, but they depreciate quickly. Strong assets like real estate generally appreciate in value over time.

Equity-Rich and Cash-Poor: A Case Study

Is it better to own assets or cash? 

Both assets and cash can be good investments. Ideally, you want to have a balanced portfolio with a good amount of liquid cash in the bank, and strong assets that are likely to rise in value in the long term. 

Pros and cons of cash

The main benefits of cash are simplicity and ease of use. With some limited exceptions, you can access the money in most bank accounts quickly and easily. 

Cash also makes for a very safe investment. Most U.S. banks are members of the Federal Deposit Insurance Corporation (FDIC), which backs consumer accounts up to $250,000. If you have more than $250,000 in cash, consider distributing it among multiple FDIC-insured banks.

The biggest downside to cash is that it hardly ever appreciates, as banks currently offer very low interest rates. When rates are so low that they fail to keep up with inflation, you’re actually losing money.

Pros and cons of assets

Unlike cash, strong assets can appreciate in value. 

The stock market’s average annual return for the last century has been around 10% before inflation. This outperforms the interest rates on most bank accounts by a large margin, and that includes high-yield savings and certificate of deposit (CD) accounts. Real estate often appreciates in value as well.

Average sales prices of houses sold in the U.S. from 1975 to 2020.

On the other side, however, some assets can be hard to liquidate. For instance, you may sell your home for a large sum of cash, but you’d first need to:

  • Find a buyer

  • Carry out necessary repairs

  • Find a new place to live

  • Take care of all the paperwork

  • Cover expenses such as closing costs and real estate agent fees

From start to finish, the process can be costly, time-consuming and labor-intensive.

How home equity enables you to tap into the full value of your assets

Your equity is the portion of your home that you own. The more payments you make on a mortgage, the more equity you build up. For instance, if your home is worth $500,000, and the remaining balance on your mortgage is $400,000, your equity would be $100,000.

The best thing about your home equity is that it’s a resource you can tap into if you’re short on liquid cash. There are multiple ways to unlock your home equity, including the following.

Home equity loan (HEL)

A HEL allows you to borrow money against your home equity, with the property serving as collateral. You get a lump sum (up to 85% of the property’s value) that you then repay in monthly installments, usually at a fixed interest rate.

Eligibility criteria vary, but in most cases, you’d need:

  • At least 15-20% home equity 

  • A credit score of 620 or higher

  • A maximum debt-to-income (DTI) ratio of 43% 

Home equity line of credit (HELOC)

A HELOC is similar to a HEL, with the exception that you get access to a rolling line of credit instead of a lump sum up front. You can borrow as much as you need when you need it (within your credit limit) and only repay the amount borrowed plus interest. The interest rates are usually variable.

A comparison of HELs and HELOCs

Home equity agreement (HEA)

Unlike HELs and HELOCs, HEAs are not loans. There are no monthly payments, interest rates or high credit score requirements. Income requirements are flexible.  

Instead, you receive a lump sum up front – typically up to 10% of your home’s current market value. In exchange, the HEA provider gets a percentage of the proceeds when you sell the property after the end of the term, usually in 10 years. If you don’t want to sell, you can buy the HEA provider out.

In the meantime, you continue to live in the property as normal. 

Access your home equity with Unlock

Are you house-rich, cash-poor? If so, we can help.

With Unlock’s innovative HEAs, you can tap into the equity you’ve worked so hard to build up in your home – all without tying yourself to yet another loan. 

To start the process, tell us about yourself and your financial situation here. We’ll take it from there.