Business
- - Over the decades, one of the best ways of generating wealth is owning real estate. It could be your own home, could be income property. And it's in the form of equity. Equity is the amount of money that you own in the property. And over the years, equity is the amount of money that this property actually generates for you. So by buying real estate, you have a very, very high incidence of making money as you own the property over the years. So first equity is what I call the initial equity. The equity is the dollar amount of your home that you actually own. And at the point of purchase, if you used a mortgage, you can calculate your equity simply by subtracting your loan balance from the sales price. In this example, it's $300,000 sales price minus the $250,000 mortgage. And that leaves a positive $50,000 in initial equity. Now it gets even better, because over the years, again, if you use a realtor or broker and you buy in a good area in a good housing market, like the Austin and Central Texas market where there is no price bubble, it's solid economy, the house will, actually, or the real estate, whatever it is, will actually generate money for you. So looking at year-to-year increases... It's been this way since 2008, but we see no reason for it not to continue. And it's a fairly modest increase, because we have no price bubble here. So over the years, considering just single family homes, condos, and town homes in the Austin and Central Texas market, the average year-to-year increase is anywhere between 3.8% and 5.7%. And just for your information, the median sold price of all those homes in April of 2018 was $316,000. But let's go back to the 3.8% to 5.7% year-to-year increase in market value. I took the midway point, and I have calculated 4.75%. So in this example, a very solid example, of a $275,000 home that you initially purchased, and the next year it goes up about $13,000 using that 4.75 figure. The next year it goes up a little, almost $14,000, and then the next year, $14,000, for the final year, in this example over a four-year period, a little bit over $316,000. So if you subtract the original purchase price of $275,000 from the $316,079, you come up with generated equity of a little bit over $41,000 over those four years. That's fantastic news. You did very well. All the homes that I have ever sold, I've walked away with a considerable profit simply because they were bought smart. They were bought in good areas. And we just sit back, and you watch the value of the house rise. What can you do with that money? You could borrow against it. Maybe you have improvements in the house you wanna do. You wanna add on something. You wanna put a pool in Whatever it might be, it's there for you to use. And of course, when you sell the house, that is another opportunity for you to cash out the money that your real estate, whether it be your home or income property, has actually earned for you. That's good news. If you're interested in selling your home, certainly you wanna check out myTexasRealEstate.com and see the nine big seller mistakes. And make sure you don't make those mistakes. But they're available to you on the website, once again, it's myTexasRealEstate.com/9-big-seller-mistakes. The good news is equity. When you purchase a home, the house, or whatever the real estate is, should make money for you if it's bought right. I'm Cliff Hahn, broker-owner of HAHN Real Estate serving all of Central Texas in the greater Austin area where it's always time to buy Texas.