Money can’t buy happiness, we all know this well-known phrase to be true. But money can help to keep you and your family safe, healthy, and well-educated. Today, the average American is struggling to build wealth. A recent report found that the median net worth of an American citizen is under $45,000 (which ranks 19th in the world). Home ownership rates are also on the decline, down nearly 7 percent compared to rates reported in 2005, according to an annual report from the United States Census Bureau.
The good news is that those who are able to own a home will be able to use this investment to build long term wealth. While average home values did take a dip in the mid 2010s, home prices are beginning to move higher. Now is a great time for prospective home owners to invest in a property, or for current home owners to take steps to improve the value of an existing home.
This article will review a few different ways readers should think about using a home to build long lasting wealth.
- Purchase a property in an up and coming neighborhood
In one context, the term “Gentrification” is associated with displacement, and inequality. However, at an individual level, the phenomenon of Gentrification can quickly increase the value of a home.
For those interested in finding a home that will quickly appreciate in value, being able to identify an up and coming area is critical. According to a recent article in the Wall Street Journal, there are a few signs that a neighborhood is about to enter the cycle of Gentrification.
Home buyers should look at properties in densely populated urban areas, these areas tend to Gentrify more easily than those in the suburbs or in sprawling neighborhoods.
Another sign of Gentrification is rising household incomes. To determine if incomes are rising take a look at the stores in the area. If organic grocery stores, or boutique liquor stores are able to thrive in a neighborhood, it is a good sign that average household income is on the rise.
Lastly, home buyers should look at neighborhoods slated for some sort of infrastructure overhaul. It is often the case that a new mode of public transportation, improved parks, or similar projects can create a tipping point whereby home prices dramatically increase in a short period of time.
- Use a home equity loan to fund major renovations
Renovating your home can have a significant impact on home value, and on how long it takes for your home to sell. Bathroom, kitchen, and landscaping renovations tend to impact value in particular.
However, finding the capital to fund such renovations can ordinarily be challenging. After all, normal living expenses that range from law school tuition to online guitar lessons can make it nearly impossible to finance renovations like a kitchen remodel, which can cost upwards of $50,000.
That’s where a home equity loan comes in. With a home equity loan, a home owner borrows money against the value of the home. Depending on the terms of the loan, the money is paid back with fixed or variable rate interest. Again, depending the terms, the loan must either be paid in full when the home is sold, or on a pre-agreed date.
Those considering a home equity loan will need to choose from a fixed rate loan, which tends to offer more favorable terms for borrowers, and a line of credit loan which is often a riskier option suited for those who need to find cash for on-going expenses.
- Take on “sweat equity” projects
While it is usually best to rely on professionals when undertaking large home renovations, there are a number of projects that home owners can do on their own that can improve the value of a home.
Nearly anyone can learn how to paint like a pro. All it takes is practice, patience, and the help of a few online videos. Painting the interior or exterior of your home can increase home value if done well.
Another great sweat equity project is refinishing hardwood floors. Over time, normal wear and tear will eat away at the finish on hardwood floors. Using a floor sander, which can be rented at most home improvement centers, and a few coats of varnish can breathe new life into an entire home.
Conclusion
Home ownership is an effective way to build long lasting wealth. Purchasing a home in an up and coming neighborhood is a great way to quickly create wealth. Another way to do this, is by investing in tasteful home renovations. Home owners should consider using a home equity loan to fund such projects. Even smaller projects like installing the best french door refridgerators can be a great way to improve home value through a little sweat equity.
