Could Rising Home Prices Impact Your Net Worth?Learn how to determine your current net worth and how an investmentin real estate can help improve your bottom line.Among its many impacts, COVID-19
Could Rising Home Prices Impact Your Net Worth
Dated: June 2 2021
Learn how to determine your current net worth and how an investmentin real estate can help improve your bottom line.
Among its many impacts, COVID-19 has had a pronounced effect on thehousing market. Low home inventory and high buyer demand have drivenhome prices to an all-time high.1 This has given anunexpected financial boost to many homeowners during a challengingtime. However, for some renters, rising home prices are making dreamsof homeownership feel further out of reach.
If you’re a homeowner, it’s important for you to understand howyour home’s value contributes to your overall net worth. If you’rea renter, now is the time for you to figure out how homeownershipfits into your short-term goals and your long-term financial future.An investment 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 net worth?
Net worth is the net balance of your total assets minus your totalliabilities.Or, basically, it is what you own minus whatyou owe.2
Assets include the cash you have on hand in your checking and savingsaccounts, investment account balances, salable items like jewelry ora car and, of course, your home and any other real estate you own.
Liabilities include your total debt obligations like car loans,credit card debt, the amount you owe on your mortgage, and studentloans. In addition, liabilities would include any other paymentobligations you have, like outstanding bills and taxes.
How do I calculate my net worth?
To calculate your net worth, you’ll want to add up all of yourassets and all of your liabilities. Then subtract your totalliabilities from your total assets. The balance represents yourcurrent net worth.
Total Assets – 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 that your net worth is a snapshot of your financialposition at a single point in time. Your assets and liabilities willfluctuate over both the short term and long term. For example, if youtake out a loan to buy a car, you decrease your liability with eachpayment. Of course, the value of your asset (the car) will depreciateover time, as well. An asset that is invested in stocks or bonds canbe even less predictable, as it’s subject to daily fluctuations inthe market.
As a homeowner, you enjoy significant stability through your monthlyreal estate investment, also known as your home mortgage payment.While the actual 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 a homeowner, contact us for an estimate of your home’smarket value so that you can factor it into your net worthcalculation. If you’re not a current homeowner, let’s talk abouthow homes in our area have appreciated over the last several years.That way, you can get an idea of how a home purchase could positivelyaffect your net worth.
How can real estate increase my net worth?
When you put your real estate dollars to work, it’s possible togrow your net worth, generate cash flow, and even fund yourretirement. We can help you realize the possibilities and maximizethe return on your investment.
Generally, property appreciates in one of two ways: either throughchanges to the overall market or through value-added modifications tothe property itself.
This type of property appreciation is the one that many homeownersare enjoying right now. Buyer demand is at an all-time high due to acombination of record-low interest rates and limited housinginventory.4 At other times, rising home prices have beenattributed to different factors. Certain local conditions—like anew commercial development, influx of jobs, or infrastructureproject—can encourage rapid growth in a community or region and acorresponding rise in home values. Historically, home prices havebeen shown to experience an upward trend punctuated by intermittentbooms and corrections.5
Strategic home improvements
Well-planned and executed home improvements can also impact a home’svalue and increase homeowner equity at the same time. The type ofhome improvement should be appropriate for the home and in tune withthe desires of local buyers.
For example, a tasteful exterior remodel that is in keeping with thepreferences of local home buyers is likely to add significant valueto a home, while remodeling the home to look like the Taj Mahal or afavorite theme park attraction will not. A modern kitchen remodeltends to add value, while a kitchen remodel that is overly expensiveor personalized may not provide an adequate return on investment.
You may be used to thinking of investments primarily in terms ofstocks and bonds. However, the purchase of a real estate investmentproperty offers the opportunity to increase your net worth both uponpurchase and year after year through appreciation. In addition,rental payments can have a positive impact on your monthly income andcash flow. If you currently have significant equity in your home,let's talk about how you could put that equity to work by funding thepurchase of an investment property.
Long-term or traditional rental
A long-term rental property is one that is leased for an extendedperiod and typically used as a primary residence by the renter. Thistype of real estate investment offers you the opportunity to generateconsistent cash flow while building equity and appreciation.6
As an owner, you don’t usually have to worry about paying theutility bills or furnishing the property—both of which aretypically covered by the tenant. Add to this the fact thattraditional tenants translate into less time and effort spent onday-to-day property management, and long-term rentals are anattractive option for many investors.
Short-term or vacation rental
Short-term rentals are often referred to as vacation rentals becausethey are primarily geared towards recreational travelers. And as morepeople start to feel comfortable traveling again, the short-termrental market is poised to become a more popular option than ever. In2020 alone, in the thick of widespread travel bans, the short-termrental platform Airbnb’s market share of the hospitality industryreached as high as 41 percent.6
Investing in a short-term rental offers many benefits. If youpurchase an investment property in a top tourist destination, you canexpect steady demand from travelers while taking advantage of anynon-rented periods to enjoy the home yourself. You can also adjustyour rental price around peak demand to maximize your cash flow whilebuilding equity and long-term appreciation.
To reap these benefits, however, you’ll need to understand thelocal laws and regulations on short-term rentals. We can help youidentify suitable markets with investment potential.
WE’RE HERE TO HELP
Ready to calculate your personal net worth? Contact us for aneasy-to-use worksheet and to find out your home’s current value.And if you want to learn more about growing your net worth throughreal estate, we can schedule a free consultation to answer yourquestions and explore your options. Whether you’re hoping tomaximize the value of your current home or invest in a new property,we’re here to help you achieve your real estate goals.
The above references anopinion and is for informational purposes only. It is not intendedto be financial advice. Consult theappropriate professionals for advice regarding your individual needs.
National Association of Realtors-https://www.nar.realtor/newsroom/housing-market-reaches-record-high-home-price-and-gains-in-march
Federal Reserve Economic Data-https://fred.stlouisfed.org/series/MSPUS
Otniel Gil has been a top agent in Treasure Island, FL real estate for over 10 years. Prior to entering the real estate business, he was in the insurance & wealth management industry and his backg....
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