In order for real estate to be an investment, you need to be able to build equity in the property. Here are a few of the most common ways to build equity.
- Hang onto the property for a while. Real estate values tend to go up over time, so if you have the property for a while you will naturally end up with more equity over time. You can do this virtually for free by renting the property for at least the amount of the mortgage every month, so that someone else is paying the mortgage and you only have to maintain the property.
- Buy the house below market value. Getting a good deal on a house means that you can easily sell it for more than you paid for it, earning a return on your investment — or, if you prefer, take out a line of equity on the difference between what you owe and the market value.
- Upgrade and improve. Doing upgrades on the house also helps you by increasing the value over what you owe on it. For instance, you might remodel the kitchen, upgrade the bathroom, or put in a garage. Even “extras” such as Fire Magic outside kitchens can increase the appeal to buyers, and therefore add to the market value.
Traditionally, paying their mortgage every month while they waited for their house to appreciate over time was pretty much people’s only option for building equity in their homes. Thankfully, today we have other opportunities that enable us to build equity much faster!