HOME BANKING OWNERS ARE CASHING IN ON RISING EQUITY FOR RENOVATIONS, IMPROVEMENTS, INVESTING AND MORE.

Byline: Gregory J. Wilcox Staff Writer

Bill Bowles is in the midst of a real sweat equity project this summer.

The owner of Beachwood Builders, Bowles is doing much of the work adding a second story to his San Fernando Valley home himself and he's paying for it with the money he saved on his home loan, which he refinanced last summer.

``We could have taken the money out (of the house) and eaten on it for five years and we'd have nothing. Keep the house's money in the house,'' Bowles said while taking a break from working in the triple-digit heat.

Like a lot of other Southern California residents, Bowles is taking advantage of the unprecedented buildup in home equity that's occurred since home prices rose from near record lows in the late 1990s to record highs today.

Inventories, while improving, are still tight in many markets from the Inland Empire to the Antelope Valley. And prices are so high that trading up won't buy much more house now than at the start of this decade.

So putting that equity to work around the house makes good financial sense.

While there are no firm statistics on how much equity investment is taking place, there is evidence that it's on the increase. And with mortgage rates on a general upward trend, home equity loans are becoming the financial weapon of choice for a variety of uses.

``You'll tend to see a spike when first mortgage rates go up and there has been steady growth in taking cash out,'' said Vijay Lala, executive vice president of product development at Countrywide Home Loans.

Michael Hayes, president of the Inland Empire chapter of the California Mortgage Brokers Association, agrees.

``Now that rates are starting to go back up the line of credit is becoming very popular,'' Hayes said. ``It's equity they are sitting on they can utilize ... and it makes the interest on that tax deductible. It's found money so it's very attractive.''

Paul Schenck, who lives in the Orangecrest area of Riverside, has put the money in his house to work for him a couple of times during the price run-up of the last several years.

Schenck, a project manager for L. D. King Inc., an Ontario civil engineering company that does residential subdivisions, bought his house new four years ago. Prices were already moving. He paid $313,000 for the six-bedroom home on a view lot and by the time he signed the closing documents it appraised for $320,000.

The continued run-up in housing values enabled the family to add some personal touches to the house.

The first refinance helped pay for a balcony off the master bedroom, an aboveground spa, finishing the landscaping, outdoor ceiling fans and backyard lighting.

Their next step was refinancing to a loan with bi-weekly payments and a $19,000 equity line of credit, which financed a couple of small trips and projects though most of the balance is still available. The house appraised for $365,000 in the latest transaction.

And Schenck got some more cheering financial news recently.

A house across the street from his is on the market for $625,000.

``I think the guy across the street and his real estate agent are stretching it a little bit, but if they get that it's great for me,'' he said.

Using home equity is a matter of personal choice, but some projects offer a better dollar return.

Financial planner Louis Barajas, head of Louis Barajas & Associates in Los Angeles and a member of the Financial Planning Association board of directors, said that taking out an equity line of credit is a good way to increase cash flow.

For a family with a lot of bills, it makes sense to pay them off because consumer debt is not tax deductible while equity debt is. Just don't build the debt back up again, he cautions.

``Home improvement is a good thing but the caveat is what kind of home improvements,'' he said. For example, it doesn't make much sense to improve a home to a value much greater than what other properties in the neighborhood could likely sell for.

Greg McBride, senior financial analyst at the Web site bankrate.com, said that homeowners should also be aware that an improvement project won't always yield a dollar-for-dollar return when selling the house.

Room additions and kitchen and bathroom makeovers tend to add more value than a swimming pool or lush landscaping.

Personal choice also comes into play.

``The decision on these projects boils down to how long you plan to stay in your home,'' McBride said. ``Is the project being done for you, the current owner, or for the next owner?''

Gregory J. Wilcox, [phone]

greg.wilcox(at)dailynews.com

EQUITY TIPS: ON THE HOUSE

Here are some suggestions on what to do and avoid with the equity in your home.

THUMBS UP

--Renovate the exterior or interior of your house. Best bets are kitchen and bathroom makeovers and bedroom additions.

--Convert consumer debt like credit cards, which is not tax deductible, into equity debt, which is.

--Take out an equity line of credit if you plan to retire soon because banks typically won't lend to someone who is not working.

--Buy investment property if it will service the debt and provide an income stream immediately or in the near future.

--Start a small business. But make sure that the risk is acceptable, and write a business plan.

THUMBS DOWN

--Build a pool or spa.

--Take a vacation.

--Buy furniture. As soon as you put it in the house it's worthless.

--Pull money out of the house and invest it someplace else, like the stock market.

--Cash out and sit on the windfall in anticipation of buying real estate on the cheap during the market's next collapse.

--Make loans to family members.

--Set up a college fund for the kids. School loans typically carry a lower interest rate.

Source: Daily News research

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EQUITY TIPS: ON THE HOUSE (see text)