Four Ways to Build Equity

Building equity in properties has been key to our success. We buy cheap, build equity, and utilize that equity for the next project. It’s the same concept whether you are buying rentals or buying a home. So here’s a couple ideas to help you get the most out of your money.

Focus on the right spaces

One of the biggest lessons I’ve learned being in real estate is, if you want to build equity you need to spend money in the right places. They always say kitchens and baths sell homes, and this is very true.

The very first property I purchased, it was fully occupied so I worked solely on the exterior. We had a new garage built, new porches and doors, rebuilt the chimney and stoop, cleaned up the yard and painted. That summer I spend $17k fixing up this place. I had it reappraised at the end of the summer and it only appraised for $5k more than what I bought it for. It was mind blowing to me because I had spent a good chunk of change and the place looked so much better. The exterior work needed done regardless, but the living conditions were still the same- and that’s what made the difference.

Flash forward two years later and we now have the interiors complete. We have just recently had it reappraised in hopes of using the equity to cover the down payment of a new property. This time it appraised $33k higher which is huge for the area it is located. But it just goes to prove that if want to gain the most equity out of a property for the least cost, focus on the bigger ticket items- kitchens and baths.

Don’t outprice yourself for the market

When you are looking to build equity, you also have to consider where the home is located. My husband and I sometimes struggle with this with our own home because we want our home to be nice, but we also don’t want to outprice ourselves out of the market. Before starting a renovation project, think about:

-          What you paid for the home?

-          What other homes in the area are going for?

-          What the cost is to do the work is?

-          Would future home buyers would find that upgrade appealing?

For example, we live in town where homes are right around $145,000. We have a single car garage and its small. We wanted to make it bigger and put a bigger door on it so we could fit more and it would be easier to park- although, we don’t have the space to make it a two car garage. The quote we received for this was $15k. We would never see that money back if we wanted to sell the home. The garage is still a one car garage and that is what the buyer would see. So even though it would make a difference to us, we wouldn’t ever recoup any of that money. So not to say that you shouldn’t spend on what you want, just make sure you understand what costs will help your value, and what costs are just for you.

DIY

I think this is a huge money saver and equity builder. If you are able to do the work yourself- do it! We have saved so much money in labor costs because we have been able to do the bulk of our renovations ourselves. Even if you’re not super handy, there is a lot you can do without getting real technical. We did our kitchen remodel which costs us under $3000 total. We used the original wood cabinets, sanded them down and painted them. We replaced all the cabinet fixtures, painted the walls, installed beadboard (to cover the old plaster!), swapped out lights, installed a backsplash and had a countertop installed. The countertop was the most expensive portion of the remodel because we paid to have them install it versus doing it ourselves. None of this involved anything technical and made a huge difference in our home. So just because you are doing a remodel doesn’t mean you can’t use what you already have. A lot of times it’s just updating existing, which is way cheaper than gutting. So always keep an open mind to the possibilities.

Have a budget

This would be my last recommendation for building equity- have a budget. Not only is it important to have a budget, but keep track of your expenditures. It’s very easy to keep on spending on a couple things here and a couple things there and next thing you know you’ve spent $2k. Things can add up quickly when you are doing a remodel, so layout the plan first and come up with a responsible budget. And if you are unsure of what a reasonable budget is, google things! We have actually gone through the Lowes website to price things out to get a budget so we had a pretty accurate idea of how much we needed to spend. There’s nothing worse than getting towards the end of a project and looking at your credit card bill and wondering where in the world all that money was spent. So take some time to do it upfront and you’ll feel a lot better and more prepared moving forward.