Stocks. Bonds. Real estate. These are a few of the ways to build up your investment portfolio and increase your wealth. With real estate, your value lies in the equity created. You probably heard of the term “equity” before, but do you really know what it means to build equity? Read on to find out.
How to Build Equity in Your Home
What is “Equity”?
Equity means the amount of an asset you actually own when you deduct what you owe on it. For example, let’s say you purchased your Tulsa home for $150,000 back in 2016. You put 20% down. That means that your equity as soon as you walked in the door was at least $30,000. Over time, your home appreciated in value while you continued to pay principal and interest each month. Your current balance hovers around $100,000. But the fair market value of your property right now comes in at $225,000. That means that you have $125,000 in equity for your property. That is a nice chunk of change for a five-year investment.
How Can I Build More Equity?
The best way to build equity in your Tulsa home comes in the form of paying off your loan. Until you pay the loan in full, the bank owns part of your property. (The property acts as collateral for your mortgage loan.) Making extra payments to get it paid off sooner means that your equity increases faster. Consider paying half of your monthly payment every two weeks. At the end of a year, that means making a total of 26 payments (or the equivalent of 13 payments in a 12 month period).
Another way to build equity in your Tulsa home is to make improvements that increase its value. Maybe it is time for a bathroom upgrade. Perhaps you need some renovations to help you age in place. (This is very popular with elderly buyers and younger homeowners who care for their elderly relatives.) Anything that increases your market value also helps increase the equity in your home.
How Can I Use My Equity?
Some people use the equity in their homes to pay down other debt. A refinance brings down your monthly payment, freeing up money to pay down other debt. A home equity loan or second mortgage allows you to tap into your equity the same way while you still maintain ownership of the property. And some people sell their property to use the equity to purchase another home elsewhere. Each person has their own set of circumstances they need to consider when thinking about utilizing their equity. I highly recommend talking to your accountant, tax person, or bank first to see which option (if any) works best for you.
Lori Cain, REALTOR®, Serving Midtown and the greater Tulsa, OK area. Call 918-852-5036.
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