Cynthia Lanciloti's Blog
Buying your first home is a big decision; one that involves a lengthy process of saving money, building credit, and planning the next phase of your life. However, owning a home comes with one major payoff: home equity.
Simply put, home equity is the amount of your home that you’ve paid off. However, it does get more complicated when we bring in factors like the market value of your home and how it shifts over the years.
In this article, we’ll discuss home equity and what it means for you as a homeowner. This way, you’ll have a better idea of what to expect when you finally make that last payment on your home or when you decide to sell.
Home equity and market value
As I mentioned earlier, home equity is more than just the amount you’ve paid toward your mortgage. Like most markets, the housing market shifts over time.
Most homes slowly increase in value over time. In the real estate world, this increase in value is called appreciation.
However, that doesn’t mean that your home is simply going to increase in value indefinitely until you decide to sell. As you will find out (if you haven’t yet already), owning a home can be expensive. Houses age and require upgrades. If you fail to keep up with the maintenance of your home, its value can diminish.
How to build equity
The most important thing you can do to build equity is to make on-time payments to your mortgage. Making extra mortgage payments will help you build equity even faster.
One method of paying extra on your mortgage that many people are adopting is to make bi-weekly payments. Twenty-six bi-weekly payments comes out to 13 full payments per year, the equivalent of making one full extra monthly payment.
The second method of building equity is something that you have less control over: appreciation. However, if you stick to a maintenance schedule for your home and keep it in good repair, you’ll most likely benefit from appreciation over the lifespan of your mortgage.
What can I use home equity for?
The most common way to use home equity is as a down payment or full payment on your next home. First-time buyers who don’t have a 20% down payment saved often buy a starter home and then later upgrade as their family grows and their needs change. In the years that they own their first home, they build enough equity to make a full down payment on their second home, avoiding fees like mortgage insurance.
Many homeowners planning on retiring in the near future use their equity toward their retirement home, often turning a profit in the process. If you plan on downgrading for retirement and have fully paid off your mortgage, you can often use your equity to pay for your next home in cash.
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Investment in real estate rental properties has many upsides. You can make great money long term. But as with any business, there are risks. Before you turn your condo or townhouse into a rental or invest in a house or duplex, consider the ramifications and consult professionals.
Dos and Don’ts:
- Do set up a legal entity to own your rental properties for you. This may be a Limited Liability Company (LLC), Corporation or Partnership. Don’t hold the property in your own name. This protects you from lawsuits and judgments.
- Don’t overspend on the property. Don’t overspend on upgrades or refurbishing.
- Do take care of the major systems such as HVAC, plumbing, electrical, roofs, in-ground sprinklers and garage doors.
- Do get the property inspected to make sure there is no hidden damage or problems you’ll need to fix.
- Don’t buy your first rental without looking at it.
Dealing with Tenants
Owning a rental property does not guarantee you’ll have immediate profits. If you go several months unoccupied, you still must pay the mortgage, taxes and insurance. If you don’t know how to go about getting tenants, consider using a property management service. The small monthly fees you pay usually make up for months with no rent or bad renters.
Another advantage of using a service is that they vet your tenants for you. They run the credit checks and make the phone calls to employers and banks. The only thing worse than no tenant is a bad tenant. Bad tenants damage property, renege on paying their lease payments, and cost you money if you decide to evict them.
As with any home, there’s no actual way to anticipate all the things that could go wrong. Sometimes, one failing system causes problems with other systems. For example, electrical malfunctions can damage the water heater, leading to plumbing failure. A leaky roof might trigger the AC to go out. Don’t run your rental business on a shoestring. Keep funds available to fix anything that goes wrong so that you don’t lose your investment.
If owning rental property is your goal, talk to an experienced real estate professional. They can guide you toward profitable properties, introduce you to property management companies and help you on your way.
The home selling process should be fast and profitable. Yet problems may arise that make it tough for a seller to optimize the value of his or her house and enjoy a seamless property selling experience. Lucky for you, we're here to help you plan ahead for the home selling journey and avoid potential pitfalls.
Now, let's take a look at three tips to help you identify and overcome home selling hurdles before you list your residence.
1. Conduct a Home Inspection
You might believe that your house is in great shape and requires no repairs. However, if problems ultimately are discovered when buyers check out your residence, you may struggle to quickly and effortlessly navigate the home selling journey.
For a home seller, it may be beneficial to employ a home inspector. With a home inspector at your side, you can gain expert insights into your house's condition and perform assorted home repairs as needed. As a result, you can eliminate the risk that home problems may prevent you from maximizing the value of your house.
2. Get a Home Appraisal
What you originally paid for your house is unlikely to match your residence's current value. Fortunately, a home appraisal can help you gain a better idea about the present value of your house based on its condition, age and various real estate market factors.
Typically, a home appraisal report can be prepared in just days, and this report's benefits can be significant. A home appraisal report provides you with a property valuation that you can use to establish an aggressive initial asking price for your house. As such, a home appraisal may help you price your residence competitively and boost the likelihood of stirring up plenty of interest in your house as soon as it becomes available.
3. Hire a Real Estate Agent
The home selling journey can be long, complex and challenging, regardless of whether you're an experienced or first-time property seller. But if you hire a real estate agent, you can receive comprehensive support as you navigate the home selling journey.
A real estate agent will work with you to help you achieve your desired results. Thus, if you want to get the best price for your residence, you and your real estate agent can brainstorm ways to upgrade your residence and bolster its value. Or, if you want to sell your residence as quickly as possible, a real estate agent can help you do just that.
Of course, a real estate agent is happy to respond to your home selling concerns and questions too. And if you are unsure about how to address home selling issues, a real estate agent is ready to assist you in any way possible.
Want to add your house to the real estate market? Use the aforementioned tips, and you should have no trouble identifying and resolving a wide range of home selling hurdles faster than ever before.