Seven Ways Homeowners Can Build Wealth
How can a homeowner increase the value of their home, either during the sale or well before while they are stilling living in the home? Here are seven ways you can get a greater value out of your home.
1. Leverage makes you profit on the full selling price.
If you sell a $300,000 property, which you bought with 25% down, for $400,000. You get your $75,000 back plus principal payments. That’s $25,000 or a 33.4% profit margin. The bigger the leverage, the greater the return.
2. Rent Smaller Units.
Say the average intake from a three-bedroom unit is $1500 per month. From that you must pay the mortgage and other expenses, leaving you with a monthly income of $675.00. If you rental the rooms to individuals instead of a family, say to three interns, or three international students you could charge each of them say $700 per month. Since your expenses would stay the same $3825.00 per month for the property, your rental income after expenses would be $2,475.00. The assumption is that this is a three family property with three bedrooms in each unit.
3. Renting to Businesses.
Commercial leases are different than residential leases. Generally rents are higher and leases last for a longer period of time. These sorts of leases can be safer, more profitable investment if you choose a well-known business to rent to. Make sure you check your local and state laws about renting to businesses before you start looking for a tenant.
4. Tax Benefits on Interest.
Depending on your state of residence, you can often deduct the interest you pay on your mortgage from any rental income you receive in order to create a tax free profit. The details of this process may have changed under the new 2018 tax law, so it is best to check with a tax return professional, accountant, or tax attorney to get more detailed options.
5. Tax Benefits on Improvements.
You may also be able to deduct the cost of the improvements from the rental income, while the added value to the property is yours to keep. Under the new Tax Law this may have changed a bit and it is best to check with a tax return professional, accountant of tax attorney.
6. Profit from a lump sum on a refinance.
It’s well-known that making improvements to your home or property can increase the sale value. If you have made $50,000 worth of improvements to the property you bought for $300,000, put $75,000 worth of improvements, the property is now worth $375,000. You can refinance to get the $75,000 in cash and use it to put 25% down on your next $300,000 rental property! In this way, home improvements don’t just increase the value of one property; if you think broadly they can help you increase your number of incoming-producing properties.
7. Profit from Extra Cash Flows from Refinancing.
When you refinance a property to lower your monthly mortgage payments, you are generating more cash flow every month. If you’re renting out all of part of this property and you don’t lower the rents after refinancing, you’ll see even greater monthly savings. You can use this money to save up for improvement to the property, build up a reserve for maintenance, save for purchasing a new property, or build a cushion for maintenance, or maybe just live on the profits.
Remember, your home is a valuable investment! Take the time to learn the different ways it improve your financial situation.