Building Equity With a Home Improvement Plan

Your home is typically the largest financial investment you’ll ever make. Over time, we expect the equity to increase through increasing property values and a decreasing mortgage balance. While homeowners recognize the need to maintain the home in good condition, one of the best ways to maximize your home equity is to create a plan for ongoing improvements and updates.

Often the interest in a remodeling project results from either an unexpected windfall or financing for a specific project but by planning for ongoing improvements, any homeowner can engage in updates to stay current with market trends.

As tastes change, homebuyers are attracted to new features. Outdoor kitchens, great room configurations, and home offices are just a few of the trends from the past few years. More timeless desires include more square feet, chef’s kitchens, and spacious bathrooms. To stay ahead of trends and build equity, smart homeowners should build a plan for continuous improvements.

In addition to developing a fund, build a road map for upgrades and enhancements. Consider the life span of major systems, such as the roof or HVAC systems; is end-of-life a good time to switch to solar energy? Kitchen styles change dramatically every 10 years on average. Start saving for a kitchen style change on the same schedule. Can be a complete remodel or simply a new countertop.

You may not plan to sell your home for years, but things change. No one wants to consider listing a home that is outdated, taking the financial hit that comes with it. Now is the time to plan for regular updates to build equity, and you’ll enjoy the benefits of the changes too.

Homeownership Is a Great Hedge Against Inflation

Over the past couple of months, the news of rising inflation is fueling concern across the country. Currently, inflation is at a 40-year high. This is impacting household budgets the most as families try to make ends meet with less buying power. For potential home buyers, rising interest rates may cause worry that you will not be able to afford the home you want.

While these are all valid concerns, for those who are still able to finance a home, homeownership is one of the best hedges against inflation and may be worth stretching your budget to do.

The biggest advantage of owning a home in an inflationary period is a fixed-rate mortgage stabilizes your largest household expense. Most people budget 25-45% of their monthly income for housing. As costs continue to rise, rental rates will rise right along with them. These costs can far outpace salaries and increase the burden on families.

The second advantage is that home values historically outperform other assets in appreciation. Owning a home builds equity for the future that is based on a tangible asset. Even if the home loses value short-term, some studies show that over 7-years, homeowners should gain more equity than other investments.

The bottom line is that if you’ve been thinking about buying a home this year, it makes sense to act, even if interest rates are rising. This allows you to stabilize your monthly housing expense while potentially building equity for the future.