Could Rising Home Prices Impact Your Net Worth?

Learn how an investment in real estate can help improve your bottom line.

Among its many impacts, the pandemic has fueled the housing market crisis.  As a result, low inventory has driven home prices to record highs, and current homeowners benefit from this. But, unfortunately, the current market has also pushed many individuals to postpone their home-buying dreams and rent. 

If you're a homeowner, you must understand how your home values contribute to your overall net worth.  If you’re a renter, now is the time for you to figure out how homeownership fits into your short-term goals and your long-term financial future.

What is net worth?

Net worth is the net balance of your total assets minus your total liabilities. Or it is what you own minus what you owe.2

Assets include savings, checking and savings accounts, real estate, and various other personal items.

Liabilities are the total debts that you owe. They include your car loan, credit card debt, and student loan balances.

How do I calculate my net worth?

To calculate your net worth, you’ll want to add up all of your assets and all of your liabilities. Then subtract your total liabilities from your total assets. The balance represents your current net worth. 

Keep in mind that your net worth is a snapshot of your financial position at a single point in time, and your assets and liabilities can fluctuate over time. For instance, if you borrow money to buy a car, you may decrease your liability as the vehicle’s value goes down.

As a homeowner, you enjoy significant stability through your monthly mortgage, while the actual value of your home can fluctuate depending on market conditions.  Your mortgage payment will decrease your liability each month, but it can help grow your net worth by keeping up with the appreciation of your property.

How can real estate increase my net worth?

When you put your real estate dollars to work, it’s possible to grow your net worth, generate cash flow, and even fund your retirement. We can help you realize the possibilities and maximize the return on your investment.

Property Appreciation

Generally, property appreciates in one of two ways: either through changes to the overall market or through value-added modifications to the property itself.

• Rising prices

Home prices are at an all-time high due to the combination of low-interest rates and a limited housing inventory. At other times, they are influenced by factors such as new construction or job growth.

• Strategic home improvements

Home improvements can help increase the value of your home while also improving its utility.  For example, a home improvement in keeping with the local home buyers' preference is more likely to add significant value to the home. On the other hand, a kitchen remodels that is personalized and expensive may not provide enough return on investment.

Investment Property

You may be used to thinking of investments primarily in terms of stocks and bonds. However, real estate investment properties can be an excellent way to increase your net worth and provide steady income.  In addition, rental payments can have a positive impact on your monthly income and cash flow. 

If you currently have significant equity in your home, let's talk about how you could put that equity to work by funding the purchase of an investment property.

• Long-term or traditional rental

A long-term rental property is leased for an extended period and typically used as a primary residence by the renter. This type of real estate investment offers you the opportunity to generate consistent cash flow while building equity and appreciation.

• Short-term or vacation rental 

Although short-term rentals are typically targeted to recreational travelers, they are also becoming more prevalent as more people start to feel comfortable traveling again. As a result, the short-term rental market is poised to become a more popular option than ever before. In 2020 alone, the short-term rental platform Airbnb’s market share of the hospitality industry reached as high as 41 percent due to the travel ban.

Purchase an investment property in a top tourist destination. This will be beneficial as you can expect steady demand from travelers while taking advantage of any non-rented periods to enjoy the home yourself. You can also adjust your rental price around peak demand to maximize your cash flow while building equity and long-term appreciation. 

However, to reap these benefits, you’ll need to understand the local laws and regulations on short-term rentals. We can help you identify suitable markets with investment potential.

WE’RE HERE TO HELP

Ready to calculate your personal net worth? Click here for an easy-to-use worksheet and to find out your home’s current value. And if you want to learn more about growing your net worth through real estate, we can schedule a free consultation to answer your questions and explore your options. So whether you’re hoping to maximize the value of your current home or invest in a new property, we’re here to help you achieve your real estate goals.

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources: 

1. National Association of Realtors -
   https://www.nar.realtor/newsroom/housing-market-reaches-record-high-home-price-and-gains-in-march
2. Forbes -
   https://www.forbes.com/advisor/investing/what-is-net-worth/
3. The Washington Post -
   https://www.washingtonpost.com/business/on-small-business/your-net-worth-is-americas-secret-economic-weapon/2020/08/20/70df5b92-e2d4-11ea-82d8-5e55d47e90ca_story.html
4. Bloomberg -
   https://www.bloomberg.com/news/articles/2021-04-09/home-prices-soar-in-frenzied-u-s-market-drained-of-supply
5. Federal Reserve Economic Data -
   https://fred.stlouisfed.org/series/MSPUS
6. Propmodo -
   https://www.propmodo.com/what-the-growing-short-term-rental-market-means-for-multifamily-real-estate/