Buying a home is not always done with the intention to live in it. It is common for people to use real estate as a vehicle for investment and profit making. But even if you aren’t looking to get into the real estate game, it is important to know that down the road, you should be able to have made some money just by the virtue of being a homeowner. The money is made by what is called equity.
This article will explain the basics of equity and how you can use it to your advantage both if you are an investor or simply a single home owner.
What is Equity?
Very simply, equity is the change in value of a property, for this instance, a home. Let’s say your home was bought for $100,000 in 1990 and you finally paid off the mortgage loan. If today you sold the house for $250,000, that makes a $150,000 profit, and it is the equity you made off the house. The profit was so large because the value of your house increased, and because your mortgage was paid off. If you are still paying your mortgage, the equity takes that into consideration. For instance, imagine you still owed $20,000 on the loan. Instead of the $150,000 profit, that $20,000 would be subtracted, making your equity $130,000.
So essentially, the more you have paid off and the more valuable your home becomes, the greater your equity will be.
How to Maximize Equity
Besides paying off your loan, what are the best ways to make your equity as good as it can be? Short answer, do anything that can increase the value of your home. Long answer, different things you do with your home will bring varying amounts of return to your investment. Some fixes are cheap but amount to a significant value, other projects are costly and though they make your home that much better, it may not necessarily increase the value so much.
There are a million ways to improve a home, but here are five things that are really worth investing in to raise its value, and in turn, your equity.
1. Spruce up your kitchen
It seems like an unwritten rule that a great kitchen will be a huge boost to a home’s value. Kitchens draw a lot of attention from buyers, so they can make or break the entire house’s value. Investing in updated appliances, real stone counter tops of granite or marble, and freshening up cabinets with fashionable finishes and hardware may seem like a hefty project, but it will pay dividends.
2. Mind the bathrooms
Much like the kitchen, a great bathroom also can grab the hearts of potential buyers, thus a nice bathroom is essential to increasing home value. Updating the floors and walls with quality tile, and making the faucet and showers standout will go a long way.
A quick way to improve a home is to give it some quality flooring. Buyers would love to walk into space with hardwood floor or a quality carpet. Imagine touring a home and coming face to face with crusty old linoleum; yuck. Durable and attractive floors help make the space great.
4. Lighten up
Open space and sources of natural light make for a beautiful home. This may only require knocking down a wall or making room for a larger window here and there. Investing in this will draw more attention and more value to your home.
5. More rooms
This is a foolproof method to increase the value of your home. A listing of a house with 4 bedrooms is going to seem more valuable than one with 3. If you have a large space, add a closet to it and you have yourself an additional bedroom to boast on the market. By adding a room, you expanded the pool of potential buyers by including those with larger families or people simply needing more space.
There are countless things you can do to invest in your equity. Consulting with a law firm like Adam Leitman Bailey, P.C. can also guide you in the right direction, While investments cost you money in the short run, the goal is to add enough value to your home so those projects are paid off and then some.
Whether you are an investor or a single home owner, with increased equity, improving a home allows both you to enjoy it more, and to make some money off of it in the process. Real Estate equity is well worth understanding and taking advantage of.