Do you give your real estate the same consideration as your other investments?
The home that you own often gives you an enormous financial benefit over time. But most people don’t pay attention to the real estate that they own, like they do their other investments.
You probably watch your retirement account summary regularly. You add to your fund regularly and adjust it every so often to get the most benefit from it over time, based on the markets.
The little line on the chart that tells you that your total retirement investment goes up and down, but goes up overall, and makes you feel good about contributing to your future.
Yet how often do you think of your real estate as an asset?
Just like with your retirement account, when you think of your home as an investment, you find yourself making different choices in order to have a better return on your investment.
There are two things you need to think about to make the most of your real estate asset: cost and equity.
We’re all familiar with the cost of homeownership. After all, a mortgage and home maintenance costs are often people’s largest expense.
But the way that most people are conditioned to think about their mortgage cost it is too simple: take the lowest mortgage rate you can, and then refinance when rates drop.
I understand why this is the case. For most people, they’re focused on making their mortgage payment as small as possible. That’s because many people don’t have a lot of wiggle room in their budgets, between education, healthcare, necessities, etc.
But you want to look at the bigger picture if you can, and look at where is your money going. Can you make better use of it? It could be that a more strategic refinancing approach can make a big difference over the long term, as the benefits compound over time, just like adjusting your retirement fund.
You can sometimes find big adjustments, like recasting your mortgage, or refinancing your home equity loan that can set you up in a much stronger position to save money, with more of your money paying down the principal amount and less going to interest payments. But most people simply aren’t aware of their options. So they continue with a more basic approach.
And what about your home equity?
Home equity is the difference between what your home is worth and what you owe on it (your mortgage loan balance). Your home equity is part of your net worth.
Home equity is a factor of two things: the financing of your home and how much you owe, and the housing market, which determines the value of your home.
What you owe is usually based on two things: your mortgage and any home equity loans.
Many people take out home equity loans or HELOCs because they are less expensive than other loans, due to the fact that they are secured by the value of your home. They have much lower interest rates than personal loans, as there’s an asset (your house) behind them, making them less of a risk for a bank to lend to you.
But, a lot of people take a “set it and forget it” approach with their home equity financing and take the best deal when the offer is presented to them or when they have a need.
It’s smarter to have an approach where you keep up on the long-term cost/equity tradeoffs.
It’s the best approach to have a strategy where you’re aware of the cost and equity tradeoffs you are making with any decisions involving your home, since it’s usually your largest asset.
And, review your current situation periodically based on your goals, like you would your other investments.
Your real estate could end up being your strongest asset, with a little tending and strategic planning.