Typically, one of the safest investments one can make to increase their wealth is buying real estate. Whether you’re looking to invest some money or want to purchase your home for the next 30 years, real estate can help you increase your wealth with the right strategy.
If you’re about to buy a home, consider these homebuying strategies for building wealth to get a house and property that will be both a wonderful place to live and an opportunity to solidify your financial future!
The Younger, the Better
When it comes to homebuying, it’s best to get started earlier rather than later. Of course, you don’t want to stretch your finances and put yourself under a debt burden early in your life, but if you have the means, don’t wait to buy a home.
Studies have shown that people who buy homes at a younger age pay off their mortgage faster and can retire earlier. As you get older, you rely more on your accumulated wealth and equity, and owning a home for longer helps in both regards.
Your first home doesn’t have to be your forever dream home, so don’t be afraid to start with a small starter home. While it’s ideal to own a home for as long as you can to build equity, it’s advantageous to invest in real estate sooner than later.
A common strategy for some young homebuyers is purchasing a duplex, living in one unit, and renting out the other. This way, you still build equity while also adding rental income to help pay the mortgage. Once you’ve built up your wealth, you can move on to your forever home.
Think Long Term
Real estate is not a get-rich-quick scheme—you want to think about the long-term future. Remember that the longer you own a home, the more equity you build and the greater the wealth you can accumulate.
Before purchasing a home, ask yourself how long you can envision staying there. If you’re looking at a starter home, think about how long you think you have to wait before you can sell it and move into your forever home. In homebuying, always think about the bigger picture.
Gauge the Area’s Future
Don’t forget the old real estate adage: location, location, location. It’s a cliché because it’s true—the area of your home has an enormous effect on the long-term value and projection of a property.
Research the prices in the neighborhood of a home that interests you. Have they been going up, down, or holding steady? How do they compare to similar communities nearby? Are other residents young, middle-aged, or on the older side?
These factors can determine the long-term projection of your home’s value and your potential wealth.
Stay Within Your Means
We all want our forever home right away, but it’s not always the right time for such a financial commitment. There’s a good chance you’ll find a home that’s over your budget but seems perfect; resist the urge to risk your financial future.
Your home should be a good thing, not a financial burden around your neck for years. Before you even start looking for homes, come up with a sensible budget for the home and do your best to stick to it. Overpaying for a house at a young age can put you down the wrong path for accumulating wealth.
Save for a Larger Down Payment
Ideally, you should be able to pay a down payment of at least 20 percent for a new home. Anything less than that, and you’re likely to have a higher interest rate from lenders. Even a 0.5 or 1.0 percent rate increase can mean over a hundred dollars in monthly bills.
It may save you money in the short term to put less money down, but it’s likely to cost you in the long run. Stay patient and save more money for a solid down payment before committing to any property.
Think of Changing Interest Rates
Interest rates in the US have been historically low for a long time, which is great for homebuyers. But we all know that a good thing can’t last forever, and a slight hike in interest rates is likely coming. Keep this in mind when considering a new home and mortgage.
Could your monthly budget handle a 1 percent or 2 percent interest rate hike in the next year or two? It’s far from a guarantee it’ll happen, but it’s always best to err on the side of caution. You don’t want to get caught on the wrong end of an interest hike that puts you behind your mortgage payments.
Consider a Rental Property
Consider a rental property if you’re considering buying a home as more an investment than a place to live. It’s still a great way to build wealth, plus you get the advantage of having a renter’s income to help pay for the mortgage.
For example, plenty of Prominence 30A homes for sale in Florida would make for great rental and vacation homes. This way, you build your wealth and equity while also getting a fantastic vacation home that doubles as income when you’re not using it.
Flip a House
Another investment for homebuyers is a fixer-upper. Flipping houses is one of the biggest businesses in real estate, and if you do it properly, you can earn wealth fast. Flipping is more of a short-term investment but is still an excellent way to accumulate wealth in a short amount of time.
It helps if you’re handy and capable of fixing up a property or have a partner who can go in with you. A fixer-upper can earn you a considerable profit in only a few months of work, which can go toward your next fixer-upper or forever home.
Look for Renovation Potential
Even if you’re not looking to buy a house and flip it as an investment, it’s wise to think about the potential for renovation in a home. A worthwhile renovation can increase your home’s value, meaning better equity and a better return on your investment when the day comes to sell it.
Home renovations can be as simple as replacing some old tiling in the bathroom or knocking down an entire wall to give it an open-floor layout. Keep additions and changes in mind as you look at properties with the most potential. Even if you never sell your home, you’ll probably want to make some changes to make it more yours anyway!
If done correctly, investing in real estate and buying a new home can be a stressful yet rewarding experience. Buying a home is an excellent opportunity for building wealth, but it can also lead to financial troubles. Keep these 10 homebuying strategies for building wealth in mind as you look at properties, and we’re sure you’ll come away with an excellent investment that pays off years down the road!