How to Build Equity in a Home to Turn a Profit
Many people buy a house with the intent of building equity in a home, then selling. The goal is usually either to sell it to move to a more expensive home or to turn a profit on an investment property. Either way, the methods to building equity are generally the same.
The ideal place to start is prior to a home purchase. The real estate “rule” is to buy the worst house on the nicest street. The idea is to pay less than the houses in the neighborhood are worth and that will produce instant equity. Also, look for the most desirable neighborhoods in the area with the least amount of houses on the market. This will help limit supply and increase demand for your house when you are ready to sell.
In starting the remodel or upgrading process, focus on areas with the most bang for the buck. Kitchens and bathrooms are good bets. They are the rooms that sell houses and since they’re also the most expensive to remodel, they offer a higher rate of return. Prior to swinging a hammer create a realistic budget and don’t make changes that can reduce equity like eliminating a bedroom or bathroom.
Keep in mind that the goal is to turn a profit and not necessarily to live in the house long term. That means choosing colors and finishes that will appeal to a mass buyer pool. Even though you may love the color green, this is not the time to paint a room the color of a Granny Smith apple. This will limit your potential buyers and turn some people off. Keep the focus neutral, clean, and fresh.
An important rule for building equity is to make sure that the house isn’t overdone for the standards of the neighborhood. The finishes and details should reflect what is common for similar houses. Overspending on materials that won’t be appreciated by potential buyers can kill the profit in a real estate sale.
Great Tips on Building Equity
Here are some additional tips on ways to add equity to a home, then selling the house:
- Built-ins - Once something is built-in to a home, it becomes part of the house. Built-in storage, home bars, window seats, and media centers are all good ways to add equity to a home.
- Windows - If the house is older, it probably doesn’t have double-paned windows. Replacing the windows will not only make the house more energy efficient, buy will make it more valuable as well.
- Decks - If the home has a deck in need of repair, or no deck at all, this is your chance to make an improvement that will add equity.
Remember to keep external factors that affect home prices in mind in order to build equity. Stay abreast of the real estate market in the neighborhood. Short sales and foreclosures will affect the equity in all the comparable homes around it. The state of the economy in the area and time of year are also important considerations. If many people in the area are out of work, there may not be many potential buyers when you’re ready to sell. Building equity in a home and then selling for a profit will depend on these and other factors. For more on building equity, read tips on How to Build Equity.
Summer months are traditionally the time when house sales are up. There are several reasons for this. In family neighborhoods, people generally prefer to move when children are out of school. Also, the weather is usually better making it easier for people to house hunt. In planning to sell, try to time your listing for the highest possible profits. If you want to learn how to access the equity in your home, check out this article: What is a HELOC and How Does it Work?.
Nadia Miller, Fresco Design Concepts - www.frescodesignconcepts.com
Image Credit: House Sold Sign by Louoates/ morguefile.com