Since I was teenager I was infatuated with the ability to create equity. As I was a young kid, my dad had bought a lot of houses and duplexes to rent out as an investment. At the time I did not understand much about this. All I know is I spent many of my weekends helping him do handyman projects around these properties. I indeed found this interesting and obviously as a child I began asking many questions.
What I rapidly learned was the concept of building equity. I found that as he bought these properties and did basic fix ups he would increase the value of the property. A few years later as he would sell the properties I was stunned to learn that he often doubled his investment. Back then he was buying property for as little as 7k and selling it for 14 k a few years later.
Wrapping my brain around this concept I thought how cool it was to double your money. Dad said, “That my son, is known as Equity” a term I would always remember. I asked him if this is such a cool thing how come everyone does not do this. He suggested that not everyone knew how or perhaps simply did not have the interest to learn. He further explained there are other ways to build equity. I of course was all ears. Over the following years he explained these to me.
Multiple ways to build equity:
• Sweat equity: buying property putting your own sweat (hard work) into improving the property for an increased value. My favorite as a child, I actually learned to enjoy sweating.
• Values play equity: basically the same as sweat equity without the sweat. You can buy a property and hire the rehab work done. This value play will increase your equity position without the sweat. My new favorite as I am older and believe in working smarter instead of working harder.
• Debt reduction equity: Dad called this tenant paid equity. As you pay down the mortgage (or your tenant pays down your mortgage, the mortgage total is reduced. Each and every month the equity builds bigger and bigger.
• Acquisition equity: Experience tells you that when you buy the property correctly you will have equity day one. Essentially paying less for the property than it is currently worth.
• Make your money going in equity: Some refer to this as path of progress equity. As an example, you buy a property in the path of progress, with property values increasing as the demand for properties in the area rise, your equity also rises.
• Appreciation equity: Appreciation is its own term of course but as the appreciation occurs you are indeed accruing more equity…
These of course are not all technical and dictionary real estate terms but they indeed go to illustrate how many different ways to build equity that you can engage in.
Building equity I believe is the easiest and most lucrative way to build a wealth and it is the principle used by over 90 percent of the wealthy people today to build their lifestyle portfolios.