Learn how todetermine your current net worth and how an investment in real estatecan help improve your bottom line.
Among its manyimpacts, COVID-19 has had a pronounced effect on the housing market.Low home inventory and high buyer demand have driven home prices toan all-time high.1 This has given an unexpected financialboost to many homeowners during a challenging time. However, for somerenters, rising home prices are making dreams of homeownership feelfurther out of reach.
If you’re ahomeowner, it’s important for you to understand how your home’svalue contributes to your overall net worth. If you’re a renter,now is the time for you to figure out how homeownership fits intoyour short-term goals and your long-term financial future. Aninvestment in real estate can help you grow your net worth, buildwealth over time, and gain a foothold in the housing market to keeppace with rising prices.
What is networth?
Net worth is the netbalance of your total assets minus your total liabilities. Or,basically, it is what you own minus what you owe.2
Assets include thecash you have on hand in your checking and savings accounts,investment account balances, salable items like jewelry or a car and,of course, your home and any other real estate you own.
Liabilities includeyour total debt obligations like car loans, credit card debt, theamount you owe on your mortgage, and student loans. In addition,liabilities would include any other payment obligations you have,like outstanding bills and taxes.
How do Icalculate my net worth?
To calculate yournet worth, you’ll want to add up all of your assets and all of yourliabilities. Then subtract your total liabilities from your totalassets. The balance represents your current net worth.
TotalAssets – Total Liabilities = Net Worth
Ready to calculate your net worth? Contact us to request aneasy-to-use worksheet and a free assessment of your home’scurrent market value! |
Keep in mind thatyour net worth is a snapshot of your financial position at a singlepoint in time. Your assets and liabilities will fluctuate over boththe short term and long term. For example, if you take out a loan tobuy a car, you decrease your liability with each payment. Of course,the value of your asset (the car) will depreciate over time, as well.An asset that is invested in stocks or bonds can be even lesspredictable, as it’s subject to daily fluctuations in the market.
As a homeowner, youenjoy significant stability through your monthly real estateinvestment, also known as your home mortgage payment. While theactual value of your home can fluctuate depending on marketconditions, your mortgage payment will decrease your liability eachmonth. And unlike a vehicle purchase, the value of your home islikely to appreciate over time, which can help to grow your networth. Right now, your asset may be worth significantly more than itwas this time last year.3
If you’re ahomeowner, contact us for an estimate of your home’s market valueso that you can factor it into your net worth calculation. If you’renot a current homeowner, let’s talk about how homes in our areahave appreciated over the last several years. That way, you can getan idea of how a home purchase could positively affect your networth.
How can realestate increase my net worth?
When you put yourreal estate dollars to work, it’s possible to grow your net worth,generate cash flow, and even fund your retirement. We can help yourealize the possibilities and maximize the return on your investment.
PropertyAppreciation
Generally, propertyappreciates in one of two ways: either through changes to the overallmarket or through value-added modifications to the property itself.
Rising prices
This type ofproperty appreciation is the one that many homeowners are enjoyingright now. Buyer demand is at an all-time high due to a combinationof record-low interest rates and limited housing inventory.4 Atother times, rising home prices have been attributed to differentfactors. Certain local conditions—like a new commercialdevelopment, influx of jobs, or infrastructure project—canencourage rapid growth in a community or region and a correspondingrise in home values. Historically, home prices have been shown toexperience an upward trend punctuated by intermittent booms andcorrections.5
Strategichome improvements
Well-planned andexecuted home improvements can also impact a home’s value andincrease homeowner equity at the same time. The type of homeimprovement should be appropriate for the home and in tune with thedesires of local buyers.
For example, atasteful exterior remodel that is in keeping with the preferences oflocal home buyers is likely to add significant value to a home, whileremodeling the home to look like the Taj Mahal or a favorite themepark attraction will not. A modern kitchen remodel tends to addvalue, while a kitchen remodel that is overly expensive orpersonalized may not provide an adequate return on investment.
InvestmentProperty
You may be used tothinking of investments primarily in terms of stocks and bonds.However, the purchase of a real estate investment property offers theopportunity to increase your net worth both upon purchase and yearafter year through appreciation. In addition, rental payments canhave a positive impact on your monthly income and cash flow. If youcurrently have significant equity in your home, let’s talk about howyou could put that equity to work by funding the purchase of aninvestment property.
Long-term ortraditional rental
A long-term rentalproperty is one that is leased for an extended period and typicallyused as a primary residence by the renter. This type of real estateinvestment offers you the opportunity to generate consistent cashflow while building equity and appreciation.6
As an owner, youdon’t usually have to worry about paying the utility bills orfurnishing the property—both of which are typically covered by thetenant. Add to this the fact that traditional tenants translate intoless time and effort spent on day-to-day property management, andlong-term rentals are an attractive option for many investors.
Short-term orvacation rental
Short-term rentalsare often referred to as vacation rentals because they are primarilygeared towards recreational travelers. And as more people start tofeel comfortable traveling again, the short-term rental market ispoised to become a more popular option than ever. In 2020 alone, inthe thick of widespread travel bans, the short-term rental platformAirbnb’s market share of the hospitality industry reached as highas 41 percent.6
Investing in ashort-term rental offers many benefits. If you purchase an investmentproperty in a top tourist destination, you can expect steady demandfrom travelers while taking advantage of any non-rented periods toenjoy the home yourself. You can also adjust your rental price aroundpeak demand to maximize your cash flow while building equity andlong-term appreciation.
To reap thesebenefits, however, you’ll need to understand the local laws andregulations on short-term rentals. We can help you identify suitablemarkets with investment potential.
WE’RE HERE TOHELP
Ready to calculateyour personal net worth? Contact us for an easy-to-use worksheet andto find out your home’s current value. And if you want to learnmore about growing your net worth through real estate, we canschedule a free consultation to answer your questions and exploreyour options. Whether you’re hoping to maximize the value of yourcurrent home or invest in a new property, we’re here to help youachieve your real estate goals.
Theabove references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult theappropriate professionals for advice regarding your individual needs.
Sources:
NationalAssociation of Realtors-
https://www.nar.realtor/newsroom/housing-market-reaches-record-high-home-price-and-gains-in-marchForbes-
https://www.forbes.com/advisor/investing/what-is-net-worth/TheWashington Post-
https://www.washingtonpost.com/business/on-small-business/your-net-worth-is-americas-secret-economic-weapon/2020/08/20/70df5b92-e2d4-11ea-82d8-5e55d47e90ca_story.htmlFederalReserve Economic Data –
https://fred.stlouisfed.org/series/MSPUS
