The real estate market is a goldmine. With the right management, it has the potential to yield substantial profit. The value of a property to an owner is measured in equity. Equity is liquid cash value – it fluctuates and is easily transferrable. Equity on a property is equivalent to the current market value of the said property minus what you owe in mortgage loans or any form of debt on the property. To put it simply, equity is what you’re left with when you minus what you owe from what you own.
If a property is valued at $300,000 and you owe $150,000 in mortgage loans, then your equity on the house is $150,000.The higher the equity, the higher the potential profit if and when you sell your home.
There are two basic ways to increase the equity on your property. They are:
- Reduce property debt
- Property improvements & maintenance
Learn more: How To Buy A House In Delaware
Reduce Property Debt
Homeowners can increase the value of their property by reducing property debt. One way to do that is by making larger down payments.
A down payment is the initial sum of money paid to secure a property before getting a mortgage loan. The larger the down payment, the less loan you’ll need from the bank. This causes you to owe less and own more, thus increasing your equity.
Another way to reduce property debt is by increasing the rate at which you repay your mortgage loan. As you refund your lender more frequently, you increase your ownership percentage on the property. All mortgage payments you make contribute towards increasing the value of your property. Use this amortization calculator to see the monthly distribution costs of your mortgage repayment and how much you save by making extra payments.
Property Improvement & Maintenance
Let’s assume you spent a whopping $80,000 on full-scale remodelling and it increased the value of your home by $15,000. Just like that, your cash value on that property is automatically plus $15,000 because of the improvement you made to your home.
When it comes to home maintenance, remember to keep the house looking modern, without including any overly distinctive features or making any preferential decisions. So, for example, when having a wall repainted, you want to stick to neutral colors. Remember that you’re not renovating the home for your aesthetic pleasure alone; you’re doing it in hopes of reselling for a higher profit.
The Flip Side,
You have just read a broad overview of how to build equity with real estate as a homeowner. It would be a grave injustice if we didn’t tell you that the cash value of your home is often lower than its equity value. This means that when you sell your property, you may not get all your equity due to costs incurred during sales. Sales costs include your agent’s fee, closing costs not covered by your buyer, and any debt owed on the property such as unpaid taxes and mortgage loans. You guessed it; selling a home doesn’t come free.
What Can Make Your Equity Drop?
Several factors can instigate a fall in the value of your home; the most predominant ones are due to no fault of your own. They include unforeseen circumstances such as an increase in crime rate, deterioration of homes in your area, climate change, even bizarre things like changes in soil composition.
Here are a few other factors that could impact your home equity:
- A second mortgage or home equity loan on your property.
- Neglecting home maintenance and repairs.
- Overall market changes in local real estate.
The Bottom Line,
All in all, the real estate market can be quite beneficial only if managed properly. If you’re having doubts about delving into the real estate market and need expert advice on how to begin, Ashley Lyon can help with that. Call or email us now to begin your journey to building equity in the real estate market.