How To Build Home Equity Faster!!

https://youtu.be/_bW2kiPWMp4

I will give you short answers on how to build home equity faster:)

  1. Buy well: A good chunk of equity is made when you buy a property at a lower price than the current value.
  2. Do some fixes: Simple as adding new paint on a property can add value.  Let’s say a property has been neglected for many years and removing wallpaper and adding a fresh coat of paint in and outside for around $10,000.  After the paint, can this property sell for around $50,000 more?  If so, you just made $40,000 equity the day you bought it.  How about adding new countertops, cleaning up the yard and fixing the broken fence?  You get the idea.
  3. Structure improvements: Do you have an unfinished basement that can be finished for around $20,000 while nearby homes with finished basements sell for $50,000 more?  Then yes!  Unfinished attic with potential to add a media room and a bathroom?  How about an unused garage space that can be converted into living space?  Big enough yard where you can build an ADU (additional dwelling unit–think of an independent studio/apartment building)?  Or big enough yard that can be divided up?
  4. Zoning opportunity: Does it have a mixed use zoning that can be used as commercial and residential with good food traffic in an attractive area?  Commercial property is typically in higher price ranges and can yield higher returns when it comes to cashflow or equity building.

So, I’d like you to think about the above opportunities when you are looking for a home.  This applies to a first-time home, move-up home or downsize home.  Unless you want just a turn-key home that you don’t have to do anything with.  Which is fine, but you’ll have less equity building opportunities.

How about if you are thinking about selling and looking for equity return opportunities?  If you have a budget that you can spend toward some of the above ideas, it might be worth looking into.  Just be careful on improvement choices and don’t overdo it.  It will be a good idea to talk to your realtor about what kind of updates/upgrades will be attractive to a majority of the buyers and the ROI potential before pulling the trigger.

Is Primary Home An Asset or A Liability?

The answers might vary depending on who you talk to. I view it as a very safe asset for the majority of us!  Rich Dad Poor Dad’s Robert Kiyosaki says it’s a liability because of the debt (mortgage) you get when buying a home.  He’s also a very high-level investor, so he sees it as a liability which I can understand.

However, for the majority (who might own less than five investment properties), a Primary Home starts as a liability, but it becomes an asset over time, especially when you 1. cash out refi with the built equity 2. sell and realize the gain.

Oftentimes, I see my seller clients have built very good equity after living in their homes for 5 to 25 years and their homes are the biggest assets that accumulated with equity and mortgage payment reduction.  Most of the time, it’s a great thing.  Of course, many of them could have done better by reallocating some of the equity gains and diversified along the way, but at least it’s an asset that builds and grows for all of them.

On the contrary, if you’re renting over time, you are giving away the opportunity to grow equity and build wealth.  Your landlord will take that opportunity and run with it.  With the current skyrocketing rental prices, the opportunity cost loss is even bigger for renters.

So in my view, owning a primary home is the first step to start investing and is going to open up other investing options in the near future.  This is why I am an advocate for individual home ownership.  For most of us, it is a very sound investment strategy.

Another reason why it’s a wealth building asset is because you can leverage.  Not many banks would lend you money if you want to buy $500,000 worth of stocks.  If you are buying a primary home, you can borrow up to about $482,500 (96.5% of $500,000) and pay the rest 3.5% out of your pocket, plus about $10,000 in closing costs.

Individual home ownership is going to become more important as Wall Street is buying up the residential real estate to hold as longterm assets to generate revenues by renting out.  This reduces the number of homes that regular home buyers can buy and creates more competition that drives home prices out of reach.  Because of this problem, countries like South Korea limit investor purchases heavily.

So start saving your downpayment and closing costs (total around 5-6% of the home prices in your market) and look for a good opportunity to buy your first home when you have a steady income and plan to stay in your city for 2+ years.  You’ll thank me later.

 

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