Might your home be considered as an investment? The answer is somewhat subjective, hinging on one’s perspective. If you purchase a house to live in, it may not feel like an investment initially as you accrue costs instead of profits in the first few years. The expenses of owning a home — a mortgage, interest, maintenance, and repair — can add up.
However, an alternative perspective is that with every mortgage payment, your equity in the house grows – an opportunity missing in the renting scenario. My spouse and I are presently house hunting; while renting would be more economical for us than a mortgage, it lacks the advantage of property ownership and potential to invest.
Here’s how you can transform your home into an investment:
RENT OUT SPARE SPACE
One common way to monetize a home is by renting out unoccupied rooms, either to acquaintances or strangers via platforms like Airbnb. While inner-city houses have strong earning potential from tourists, suburban houses may fetch less. Nonetheless, even occasional rentals can generate revenue to be contributed towards mortgage payments or other expenses.
If you intend to relocate, your house could be converted into a full-time rental property. Though this requires initial funding and maintenance, profitability could be achieved if the mortgage payments have been fully settled or are close to completion.
ENHANCE YOUR EQUITY
Living in your own house doesn’t void its potential as an investment. Various refinements, both big and small, can improve your home’s value and thus your equity. Options may range from aesthetic upgrades, modern device installations, or exterior embellishments, like installing a fence.
While these enhancements are not necessary for renters, homebuyers benefit from them as they add value and attractiveness to the property. If you choose not to make significant modifications, an extra payment on a mortgage each month can also help accelerate your equity growth.
PAY OFF YOUR MORTGAGE EARLY
Paying off your mortgage early is another effective strategy to transform your home into an investment. While investing in the stock market might seem more tempting, with its decade-long average returns of 10%, recent fluctuations suggest the importance of diversified investments.
The faster you pay off your mortgage, the quicker your home becomes an effective income-producing investment. For instance, paying off a 30-year, $280,000 mortgage at 4.5% within 10-15 years can save you well over $230,000 in interest. Once the house is paid in full, it becomes a solid investment tool.
PROS AND CONS OF EARLY MORTGAGE PAYMENT
Pros:
– Better cash flow
– The possibility of early retirement
– Reduced overall financial risk
– Massive interest savings
Cons:
– Loss of tax deductions on interest
– The potential to miss out on high market returns
– Inflation can make future mortgage payments feel less significant
So, are you thinking about turning your home into an investment? We welcome your feedback!
