Covid-19 has, among its many impacts, had an evident effect on the housing market. House prices are currently at an all-time high due to high buyer demand and low inventory. So, what does this mean for current homeowners and those looking to make their first purchase? Current homeowners will see a boost in home value as the prices continue to rise.
Renters on the other hand feel that homeownership is out of reach. Although the rising home prices and interest rates are making homeownership more costly, many ask: is it still worth it to buy a home in 2022? If you are a homeowner, it is important that you are able to understand how your home value contributes to your net worth. If you are a renter, now is the time to figure out how homeownership can fit into both your long-term and short-term financial goals. An investment in real estate can grow your net worth and help build wealth overtime. It will also help you gain insight into the housing market to keep up with it its ever-changing status.
What is Net Worth?
Net worth is the total wealth of an individual, company, or household minus the value of its outstanding liabilities. Assets are cash you have on hand in your bank accounts, investment accounts, items that can be sold such as jewelry, a car and of course, any real estate you own. Liabilities on the other hand, are your total debt obligations such as loans like a mortgage, outstanding debt, and taxes.
Your net worth is a snapshot your financial position at a single point in time. Your assets and liabilities can, and will fluctuate over both short and long-term periods. To calculate your net worth, total both your assets and liabilities. Next, subtract your liabilities from your assets. The balance is your net worth.
How Can Real Estate Increase Your Net Worth?
By putting your real estate dollars to work, it is possible to see an increase in your net worth, cash flow and fund your retirement.
Here are a few ways to maximize the return on your investment.
Property Appreciation
Property appreciation can happen in two ways: changes in the market and strategic home improvements. Current homeowners are seeing their homes increase in value because of the current rising costs.
Local conditions such as new commercial development and an influx of jobs can encourage growth in a community and then in turn, show a corresponding rise in home value. Well planned and executed home improvement can add value and increase home owner equity at the same time. The type of home improvement done should be appropriate for the home and in tune with the local market. Many would appreciate a modern kitchen remodel rather than one done to match the current owner’s personal eclectic taste.
Investment Property
The purchase of real estate property provides an opportunity to increase your net worth upon purchase as well as year after year as the property appreciates in value. Rental payments have a positive income on monthly income and cash flow. There are two types of rental property to invest in: long term or traditional and short term or vacation rentals.
A long-term rental allows for the generation of consistent cash flow while building equity and appreciation at the same time for the home owner. Having a traditional tenant will translate to less time and effort spent on day-to-day property management for the owner. This is an attractive option for investors. On the other hand, having a vacation rental in a top tourist destination allows for the owner to take advantage of steady demand and adjust prices in peak demand to maximize cash flow. Then, in off-seasons they can enjoy some time there again all while building equity and long-term appreciation.
As a homeowner you can gain significant financial stability for your monthly real estate investment; your mortgage.
Although the value of your home will fluctuate depending on the current market conditions, your mortgage payment will decrease your liability each month and in turn increase your assets. The value of your home is also more likely to appreciate over time which will also increase your net worth. Many home experts agree that buying and owning a home Is a smarter financial move than renting for a lot of people.
If you feel you are financially ready- it is worth it to buy a home in 2022.