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How to Turn Your Home Into an Investment


Apr. 10, 2018 Everything Financial

Is your home truly an investment? Some will argue both sides of this argument which is why the answer can vary. If you are buying a home as your primary residence, it may not really seem like an investment since you’ll be putting more money in than you get back during the first few years.

Homeownership can be expensive between the mortgage and interest along with the repairs and upkeep to maintain the property.

On the other hand, you’ll be building up equity in your property as you pay on the mortgage which is an opportunity you don’t have when you rent.

My husband and I are in the process of buying a home right now and for us, continuing to rent would be much cheaper than a mortgage. However, we want more space and the opportunity to work toward owning a property and turning it into an investment.

Here’s how you can turn your home into more of an investment.

LIST A ROOM OR YOUR ENTIRE HOME
This is one of the most popular ways to turn your home into an investment. If you have extra space, you can list a bedroom to friends and family, or even travelers with help from a site called Airbnb.

Airbnb helps you list your spare rooms or your entire home to others and earn a nightly rate. Some people who travel often or have extra homes even make a business out of using Airbnb to list their space. If you live in a prime area, you can probably even market your home to vacationers.

However, if you live in a smaller suburb, you probably won’t make as much money. But, you could get a few bookings per month that you could use to put back on your mortgage or use for another expense.

If you plan to move somewhere else and keep your property, you can always turn it into a full-time rental property and find a tenant.

There will be some start-up and maintenance costs of course, but you can start to make a profit if the mortgage is already paid off or near being paid off.

BUILD MORE EQUITY DURING THE FIRST FEW YEARS
Even if you choose to live in your home as a primary residence you can do quite a few things both large and small to build equity if you do ever sell one day or have to take out a second mortgage.

Mortgage amortization sucks during the first few years because the majority of your house payment will go toward interest, even if you put down 20%. For a 30 years mortgage, the first 10 – 15 years are when banks collect the most interest and more money starts to go toward the actual principal balance.

What you can do to boost your equity during the first few years is give your house a nice facelift by performing some easy and affordable updates. Maybe you can refinish some of the cabinetry in the kitchen or bathrooms, reframe the windows or add shutters to add curb appeal, update some appliances or even fence in the backyard.

Sure, as a renter, you could save money by not having to do any of this stuff. But as a homebuyer, it’s wise because you’ll add value to your property which could make it easier to sell or rent out in the future. If you ever do sell your house, you want to earn a profit.

If you don’t want or need to make too many updates to your home, you can consider throwing a little extra money on the mortgage each month by rounding up. For example, if your mortgage payment is $1,342 per month, you can pay a nice even $1,400. This could easily shave off thousands in interest over the life of your loan and even shorten your repayment term.

PAY YOUR MORTGAGE OFF EARLY
I know everyone isn’t a fan of doing this, but it’s one of the best ways to turn your home into an investment. Some people would prefer to invest in the stock market instead since the S&P 500 showed a 10% average return for the past 90 years.

This year the stock market hasn’t been doing so great but there’s plenty of time for it to improve over the next few months. However, the recent stock market correction has reminded me that it’s important to diversify your investments and real estate is a worthy option.

As long as you are paying the bank for your home loan, your home won’t be the best investment since you want your money to work for you. If you pay off your 30-year mortgage in 10-15 years, you can easily save hundreds of thousands of dollars in mortgage payments and interests. Plus, you’ll improve cash flow and decrease your overall financial risk.

For example, a $280,000, 30-year loan at 4.5 percent will cost you more than $230,000 in interest alone. Imagine what you could do financially if you owned your home outright and it truly worked as an investment for you.

PROS OF PAYING OFF YOUR HOUSE EARLY
Improved cash flow
Possible early retirement (with hardly any living expenses to pay, you can quickly save enough to become financially independent)
Decreased overall financial risk
Save BIG on interest
CONS OF PAYING OFF YOUR HOUSE EARLY
Lose tax deduction (for interest paid on your loan each year)
Could miss out on higher market returns
Inflation’s effects could make your mortgage payment seem smaller in the future

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