As a Property Manager I get the opportunity to help people rent their homes and help people understand how they can own their own home too.
The most important benefit to owning a home is equity. It is essentially a savings account that you can later tap into. Equity is how you build wealth with real estate investments, thus the goal is to grow and maximize it. When you purchase a home, there are three primary ways to build equity.
Pay down your mortgage
Every month, your mortgage payment goes towards both principal and interest. Unfortunately, early on, most of it covers interest since that is calculated against the mortgage balance. However, this does gradually shift over time.
You can speed up the process by making extra payments directly towards principal. Your standard monthly payments remain the same moving forward, but your mortgage will be paid off sooner. Since your principal is lower (from the extra payment), the interest charged each month will be less. Therefore, more of your monthly payment will apply to the principal, speeding up your equity growth even more.
Improve your home
Another way that you can change your home equity is through home improvements. For instance, if you spent $3,000 to add a deck or patio to your home and it increased your home’s value by $5,000, that results in $2,000 of additional equity. The type and quality of renovations can vary based on your geographical region.
As home prices rise, that directly and instantly increases your equity. Imagine that you purchased your home for $400,000. If you made a 5% down payment, you would have started out with $20,000 in equity and a loan of $380,000. If home prices rose to $420,000, your equity would grow by an extra $20,000 ($40,000+) simply from market appreciation!
Once you’ve built equity, there are many things that you can do with it. You can cash-out some of it to pay off other higher-interest loans, finance home improvements, or fund other investments. If you are selling, that equity can be put towards the purchase of a new home (and cover the costs of selling and buying). The opportunity to build equity is something not available through renting!
All my best,
Picket Fence Properties, located in Windsor, CO is Northern Colorado’s Top Notch Property Management company helping owners with their rentals, income/investment properties and vacancies in Northern Colorado. Are you a owner of a home for rent or that you’d like us to manage? We help you have the perfect tenants in NoCO. Are you looking for somewhere to rent in Greeley, Loveland, Fort Collins, Wellington, Eaton, Evans, Windsor, Frederick, Firestone? Look no further, we have all your real estate and rental needs covered. Check out website for vacancies today.