Understanding How Home Equity Works and Why Buying a Home Can Be Your Best Investment

Understanding How Home Equity Works and Why Buying a Home Can Be Your Best InvestmentWhen delving into the world of real estate and investment property, there are many terms that will come up that require further explanation. Whether you’ve never heard the phrase ‘home equity’ before or you have a little familiarity, here are the ins and out of what it means and how this asset can help your financial outlook.

All About Home Equity

Essentially, home equity refers to your portion of the value of your home, and the amount of this figure is important because it is included among your assets when determining your net worth. If this sounds confusing, think of it this way: if you have completely paid off the cost of your home, the value of your home equity is this total amount. Of course, because most people seek a lender to borrow money from when they purchase a home, their home equity would consist of their down payment and whatever amount they’ve paid down on the mortgage since purchase.

An Example Of Home Equity

To provide further clarification, let’s use the example of a house that has been purchased for $300,000. In the case that a down payment of 20% has been provided at the time of purchase, the equity in the home would be $60,000. Since this amount is the percentage and cost of the house that’s been paid down, this is the amount of the house that is actually owned and this will be figured among an individual’s assets.

How Home Equity Works

As you pay the amount that you owe on your home each month, you are paying off your total debt and thereby increasing your equity. Since this amount of money is considered an asset that belongs to you, it can be used down the road to buy another home or invest in other important things like education or retirement. While paying off the amount owed on a home is a considerable investment, if the value of your home increases, this means that you’ll still owe the same on it but your home equity will have automatically increased.

As an asset that is part of your financial net worth and can be used down the road to fund other investments, home equity is a very useful term to know when it comes to purchasing a home. If you’re on the market for a home and are considering your options, you may want to contact one of our local real estate professionals for more information.

Money Matters: Understanding How a Mortgage Loan Can Be a Productive Investment

Money Matters: Understanding How a Mortgage Loan Can Be a Productive InvestmentMost people tend to think of a mortgage loan as a necessary evil, an expense that has to be managed. But under the right circumstances, your mortgage can become a smart investment – something that makes you money instead of costing you money. With a little bit of ingenuity and a lot of hard work, you can turn your mortgage into a money-making investment that will pay dividends for years to come.

So how do you turn your mortgage loan into a productive investment? Here’s what you need to know.

A Mortgage Can Help You Buy A New Rental Property

One of the simplest ways that a mortgage can become an investment that adds value to your portfolio is by using it to buy an income property. For a first-time investor, the simplest arrangement is to buy a single-family home and rent it out. And if you live in a college town, you’ll find no shortage of students looking for housing – meaning you’ll never have a hard time finding renters.

In order to make this work, you’ll need to first have enough money saved up for a down payment. You’ll also need to have your rental rates high enough to turn a profit, but not so high that you have difficulty finding renters. And finally, if it’s possible, you’ll want to consider turning the home’s basement into a secondary suite, allowing you to max out your rental income.

A Mortgage Can Give You A Home To Flip

The second major way that a mortgage can be a productive investment is by using it to flip a home. House flipping has become very popular in recent years thanks to a number of television programs like Flip This House – and although flipping a home can result in a major windfall, it’s not easy. In order to make a house flip work for you, you’ll need to carefully plan out the flip and ensure that you buy the right property at the right time.

Beginning flippers should usually start with an older bungalow. You’ll need a solid credit score to secure the mortgage, and ideally, you should make your down payment in cash. You’ll also want to ensure the home is in a good neighborhood – this will make it easier to sell the home when you’re done renovating.

A mortgage is often thought of as an expense, but if you plan on buying a rental property or flipping a home, it’s actually a very smart investment. There’s always risk involved, of course, but with the right mortgage and the right home, you’ll have no trouble turning a profit. Call your local mortgage professional for help in getting the right mortgage for your investment property.

Did You Know: Here’s Why Buying a New Home Grows Your Wealth Faster Than Renting

Did You Know: Here's Why Buying a New Home Grows Your Wealth Faster Than RentingThere can be many downsides to both renting and buying, depending on what side of the coin you are on, but if you’re leaning towards purchasing a home it can have added benefits for your bank account that renting does not. While renting can certainly alleviate many of the costs that go along with property ownership, here’s why purchasing a home can have positive monetary affects in the long run.

The Good Impacts of Inflation

While inflation is often seen as a dirty word, a real estate purchase can see the positive side of inflation with how your home purchase investment will grow over the years. Putting money into rent will mean that money is gone and out the window once you’ve paid for the month, but investing into a property will come back to you in future gains that are made in the real estate market. While buying a home will be more expensive in the short term, it can also provide you with greater financial flexibility and equity in the future.

Renovations Will Increase Home Value

While changing up the bathroom or the paint on the wall in your apartment isn’t going to add any extra lining to your wallet when you move out, making upgrades to a home that you own will have the very opposite effect! Renovations can certainly be unpopular while they’re taking place, but no matter how small or large, they can mean an easier sell and a higher profit when the home finally goes on the market.

The Opportunity For Rental Property

An apartment you rent won’t offer opportunity for investment if you’re away from your home for an extended period of time, but a home you own may serve as an ideal investment property at some point in the future. With the success of Airbnb and unique modern housing needs that may only require a home rental for a short period of time, being able to use your house as a rental property can be a significant boon for earning money you would have otherwise been without.

Buying a home can require a lot of number crunching in the beginning that rent does not, but it can also provide significant financial benefits down the road that might not exist without such a purchase. If you’re considering purchasing a home in the near future, you may want to contact your local mortgage professional for a review of what would work best for your situation.