It has often been said that the money made on real estate is acquired at the buy. This means that the purchase was advantageous from the start.
While flipping is not the intent of most buyers, it is important to know just how one can build equity in their home, with the emphasis being on the word build, noting that it is a verb, meaning that it requires action.
Building equity can be done in three ways:
- Paying Extra to Principle
- Improving the Property
Paying Down the Principle
Christopher Regan is an auto mechanic in (no joke) Mechanicsville, Virginia. He and his wife own two homes. They lived in the first as newlyweds, and then as their family grew, acquired a larger one in a neighboring school district, maintaining the first as an investment.
Every month, he tweaks his mortgage just a bit by rounding his monthly payment up to the nearest hundred dollars. This small sacrifice will take years off of the loan, making him far wealthier, and much faster.
For example, if his payment is $836.03 and he pays an additional $63.97 (a modest date night) each month, he will have turned his 30-year mortgage into a 25-year-10-month loan, meaning that he would be paying 50 less payments of $836.03, saving him $41,801.50!
If that savings was invested for 20 years at 7.2% interest, it would be worth more than $160,000!
Improve Your Property
Whether you have a commercial, industrial or residential property, making improvements can go a long way.
Some say that the most “bang for your buck” comes from landscaping, but that tends to only work if the property is on the market, especially since a big storm can eliminate such efforts.
Others say that the DIY method is better, too, but this only pertains to those who can give the work a professional look, which requires already having the right tools, as well as the time.
When making improvements, some great ways to go with a residential property is to remove carpets if hardwood is underneath. You can save a few hundred dollars doing the removal yourself, but, beyond that, a professional is best for sanding, staining, and finishing.
Green initiatives are great, too, whether they are solar panels, a tankless water heater, an aluminum roof, or high-end windows.
One home in New York we’re familiar with was purchased in spite of having the foul odor of pets that misbehaved for many years. When the carpets were removed and the wood floors were finished, the $2,000 job raised the market value of this $310,000 home to $350,000.
It’s not likely you will be able to rezone the property you own, but Robert Kiyosaki’s book Retire Young, Retire Rich noted an incredible story of a woman who owned raw land that was zoned as residential.
Through some legal maneuvering she was able to get the property rezoned, and made millions.
If you are looking to build equity, you must remember that the key word is build. It takes action to make money, whether you sacrifice like the Regans in Virginia, improve your flooring, or make your home more environmentally friendly.