Instant and Cumulative Equity in Your Home
One of the greatest joys in owning (or paying off) an asset is watching it accumulate value. For most of us, our home is our greatest asset – in terms of real monetary value, anyway. For that reason, watching our home accumulate value is one of the greatest joys we can experience as homeowners. And, conversely, watching our home lose value is likely one of the biggest downers we can experience.
Indeed, cumulative equity is one of the pillars of a happy retirement for many Americans. Unfortunately, the rise and fall of our home’s value can feel very far beyond our control for most of us. In fact, why our home loses or gains value can feel like a bit of a mystery for many homeowners. In this post, we’ll look at several factors that can drive more equity into your property and a few that may subvert your efforts to build value in your home.
Close To… or Location! Location! Location!
One of the biggest things that is out of your control after you’ve bought your home, is how close it is to the hottest district in town. You may have bought the home you could afford in the neighborhood you could afford, knowing full well that you’d have to travel to get to nightlife options, dining options, shopping, or where the employers have their workplaces. But, you may get lucky and have all of that come to you one day.
One of the biggest neighborhood factors that can drive new value into your property is a rise in the cache of your neighborhood, thanks to new hubs of activity moving in. Conversely, one of the biggest things out of your control that can hurt the value of your property are developments in your vicinity that make your neighborhood less desirable – think massive new freeway developments, or a new airport in your immediate area.
(Re)Development(s) in the Area
Along that same line, one of the things that can radically affect the value of your home is a phenomenon that can be called “the rising tide.” Depending on what is happening in your larger area, development or redevelopment of your neighborhood can have a rising tide affect that affects property value.
If your neighborhood suddenly gets “hot” and the speculators and developers start buying up properties and redeveloping them for resale or renting, you’re in luck! Your property value will rise along with all those that outside investors are pouring money into.
Remember when your home was appraised as a part of the purchase (loan qualification) process, and they looked around your immediate area for homes similar to yours that had sold recently? The appraiser would then use these listings as “comps” to determine what your home might be worth.
Well, if many of the homes in your neighborhood are getting fixed up and rising in value thanks to someone else’s investment dollars, this will in turn raise the value of your own property, as well.
Maintenance, Maintenance, Maintenance
Unfortunately, the opposite is also true. If you bought a home at the peak value for your neighborhood, or if your neighborhood was the hottest new thing at the time of your purchase, then you may be in for a downturn or a plateau in property value.
This can be exacerbated by your neighborhood going “more rental,” or by your neighbors failing to maintain their properties as you do yours. But for the most part, you can take heart – real estate has been steadily increasing in value over time, with all properties becoming more valuable as the years roll by, independent of all of these other factors.