The economy may be unpredictable post-COVID, but if you’re thinking of buying real estate as an investment, you may be able to use it to your advantage! Real estate investments can increase your net worth, and it’s historically the best way to build long-term wealth over time. Let’s take a look at the “why” behind investing in real estate.
What is Net Worth?
To see how real estate investments impact your net worth, we need to know what net worth is. Net worth is the net balance of your total assets minus total liabilities. In other words, it’s what you own minus what you owe. Assets include the cash you have in your checking and saving accounts, investments, items like jewelry, your car, your home, and any other property you own. Liabilities are your debts like car loans, credit card loans, mortgage loans, and student loans. It also includes any outstanding payments like bills and taxes. Assets and liabilities fluctuate over time. Depending on the specific asset or liability, the predictability will vary in correlation to the market.
How Do Real Estate Investments Increase Net Worth?
Real estate investments can increase your net worth through property appreciation–either by favorable market factors or by selecting and executing the right improvements. Additionally, if you opt to keep your real estate investments for the long term, you may see your equity increase as tenants’ rent helps to pay off mortgage obligations.
Real Estate Investments Increase through Property Appreciation
Properties appreciate in one of two ways: positive changes in the market or by adding more value to the property.
Changes in the market can be seen right now. Currently, we’re in a seller’s market since there are more homebuyers than homes being sold. This unbalance is causing home prices to increase as buyers compete against each other. Prices can also grow in certain conditions like new commercial developments, an influx of jobs [link to blog about businesses relocating to austin], or infrastructure projects. These conditions may cause an increase in home prices.
The second strategy is choosing home improvements to increase your return on investment. The right home improvement projects have the potential to increase home value and home equity simultaneously. It’s always a good idea to research what buyers are looking for before spending time and money on an investment project. Right now, backyard spaces and offices are huge for buyers.
Real Estate Investments Increase in Equity
When you choose to make a long-term investment, it typically means that the property will be leased for an extended time and used as a primary residence by the renter. This often leads to consistent cash flow that will help build your equity by paying down (or off) mortgage obligation(s). Additionally, long-term rentals are attractive to investors because they are typically stable and require low day-to-day maintenance.
If you’re ready to increase your net worth through real estate investments, contact Prism Realty today! We’re here to offer our expertise and help you achieve your real estate goals.