You have spent years paying off your mortgage. Maybe you can afford to buy a rental or vacation property. Or buy your trophy home and entertain family and friends. Or perhaps you need some home equity to pay for college tuition. Lots of home and real estate decisions to make.
A big part of your net worth is built into your primary home or multiple homes if you previously bought investment properties. The big question for you is “do you have visibility into what the net worth really is and what is the forecasted value of this key part of your retirement?”
Remembering Net Worth
Your net worth regarding your home has two financial components to it. First is the estimated value of the house. Real estate markets are always changing so it is a good idea to get an update over how the housing marketing is doing in your neighborhood and for your specific house. Another good metric to calculate is how much as your home appreciated from your original purchase price.
Next is knowing the combined loan balances on your primary mortgage and any other home equity loans or lines of credit you may have taken out. Subtract the estimated value of your home from these remaining loan balances and see what is the equity or net worth of your home.
Making Future Decisions
If you bought your house over 10 to 15 years ago, you probably have a decent amount of home equity built up. But another key factor is to try and forecast what your home value will be in 3 to 4 years and where your remaining loan balances will be. This data will essentially forecast your home equity a few years from now.
Once you have this, then you are better prepared to make various financial decisions depending on your situation. You might be considering how much equity you could take out of the house. This equity can be used for things like a college tuition or a big home improvement project you have been wanting. Maybe you want the equity for a down payment on your first rental property that could generate retirement income for you. Or you really want that vacation house you have been dreaming of.
Being aware of these financial aspects of your home puts you in the best position possible when making financial decisions on how to maximize the value of your home and possibly other real estate assets.
Don’t Forget the Expenses
You still need to track your ongoing home expenses such as the mortgage, property tax, utilities and other services. One thing that catches many people off guard if the home is over 15 years old is the need to budget for annual fix it and repair costs.
You can minimize these costs by staying on top of preventative maintenance by having a system to remind you of these seasonal tasks. But ultimately things like hot water heaters, garage door springs, and seals on double pane windows eventually wear out. You should have a budget for replacement of these items.
If you have been planning on finally getting around to that big home improvement project, make sure you have a good budget to manage it. Project costs can get out of hand quickly depending on the product and brand choices you make. Remember to track the costs, receipts and warranties because this impacts the tax basis in the house for future tax purposes. And details of your remodel projects are helpful in the future when you want to sell the house.
Valuable Hidden Assets
The personal property in your house has probably grown over the years. You have acquired more furniture, electronics, tools, etc. for yourself and your kids. You may even have some valuable items such as art, antiques, and other collectibles. Make sure you have a home inventory to itemize these possessions to make sure you understand the overall value. And it is important to make sure these are properly insured as part of your insurance policy.
With a lot of your net worth linked to your home, it is wise to get handle on this as part of your overall personal finance situation. Be a smart homeowner by protecting and growing your net worth, minimizing expenses, and having all the financial data about your home (or homes) at your fingertips to guide you in making good real estate financial decisions.