Can Equity in a home be build fast? Yes, even if you plan on staying in your home for some time. Lets see how.

What is Equity?

What does equity in a home mean? The short idea is that equity is the interest that you have in your home. Some people refer to this as a stake. The equity in your home is figured by taking the appraised value of the home and subtracting your loan value and any outstanding debt that you have toward the property.

How Is Equity Figured?

An example might be if you had a $100,000 loan that you originally took out. Lets say, for ease of example sake that you put down 10%. That would be $10,000 at the time you closed. Over time you may pay $1000 monthly on your mortgage payment. With every payment (assuming nothing happened to depreciate the home), you would decrease the loan amount and raise your equity in your property. In 6 months time. you would have the original $10,000 down payment plus approximately $6,000 in payments that would be close to $16,000 (a small percentage would be taking out in interest and miscellaneous ) or you would have about 15% equity in your home. Over time, you make payments regularly and that equity will be at 100% when all of the payments are made.

Speed Up The Equity Process

So that sounds slow, so let’s talk about how you can speed up the process. One of the very largest gains on equity to consider is to do a remodel. There are some things that could increase the value of your current house quickly. Remodeling the kitchen, bathroom or adding another bathroom or bedroom carved out of existing space can jump your home value up, and thus your equity also. Sure, it will cost you up front but if you are careful and get a helpful home remodeler they can help show you the cost of remodel verses your ROI or Return On Investment. In other words, they can give you an idea of how much greater your house will appraise for when the work is done.

Remodel to Gain Equity

A quick example might be that you have a really small bedroom that doesn’t function well as a bedroom but it would make a medium size bathroom and you decide to reconfigure your three bedroom one bathroom home into a two bedroom, two bath that now includes a master bathroom. You may lose the small bedroom that didn’t function well due to size but another bathroom that is more desirable. When a new appraisal is complete you may find you have just increased your house’s value by $35,000. Let’s say it cost you $20, 000 to put the second bathroom in. The difference between the two would be $15,000 of equity that you gained. Kitchens often add more value and unused finished out spaces can also net you a nice little chunk of equity as well.

Add A Rentable Unit To Your Home

Next, so let’s say you have a walk out basement but it’s not something that you or your family needs right now. Perhaps you currently live in a starter home and you know when you have a child or two that you will be moving on to a bigger place. That basement could be making you money if it was turned into an additional rental unit. How much money depends on a couple of things…how many bedrooms it has, how many bathrooms and what the going rate is for an apartment rental where you live. In some areas it could be anywhere from about $1000-1,300.

Lets say you put $50,000 into making it a one bedroom, one bath for college age, responsible renter. Now you are making money on your property and your equity in the house just took a giant leap because it is now a property investment. Your lender knows that when you move on you can either sell the house for more than they lent it to you for due to the improvements or you can rent both the upstairs space and the downstairs space and keep your property investment.

Bonus: the money coming in for the basement rental might just pay most of your mortgage plus improvements, in some cases all of it. Not everyone has a walk out basement but they may have a garage or other out building they could transform. But for someone who does it may be a great choice.

Add Curb Appeal For Fastest ROI

For the fastest way to add value without a remodel this is your go-to! Simply put, your home may not be able to be expanded easily to include the above ideas or it may not be the right time to financially pursue larger capital investments so making smaller ones to get started is the way to go. Most of the time a little elbow grease, bit of time and a good plan and one can increase the value of there home simply by giving it an updated look. Try power-washing the house, exterior buildings and don’t forget the sidewalks. Also a good freshened paint job, landscaping, niched lawn or patio furniture, a walkway, new mailbox or garage door update can assist. All of these ideas can help a higher appraisal of your home and get you nearly instant equity in your home.