Let’s Talk About Property Value
At its most basic, property value is what your home and the surrounding property are worth. That’s an important number, but it’s not the whole picture. If you’ve just signed a 30-year mortgage on the nicest home in the state, you may have a property worth more than most people’s life savings – but you don’t really “own” all of that value. It’s not enough to maximize property value – meeting my real estate goals and long-term investment goals means looking past the estimated home value real estate agents usually offer or assuming that any work likely to get home value estimates into better shape must be the right call.
The number we should really be talking about is your home equity. It’s a big concept that impacts many of your future financial options and should be considered in any home improvement or repair decisions. We sometimes refer to it as “house equity” to separate the emotional concept of “home” from the financial realities of a “house.” Both matter, and fortunately, what helps one can often help the other as well.
What Is House Equity?
Your house equity is the dollar value of the portion of your home and property you technically own. The simplest way to think of it is to take the current value of your house and subtract any balance still owed on your mortgage. The resulting figure is your house equity. It’s important not to confuse the economic idea of only owning part of your house with the legal concept of owning all of your home. The property is all yours. You’re responsible for whatever happens on it and entitled to protect it. If at some point you’re unable to make your payments, however, the lender has a claim on that unpaid balance and can potentially seize your home to sell. If they sell it for more than the balance you owe, you’re technically entitled to the difference.
So why talk about owner's equity?
The equity you have in your house is often the easiest and most efficient way to secure a home improvement loans. Because the lender knows you’re unlikely to run off with your house in the back seat, they can offer you better terms – including lower interest rates – because they’re taking less of a risk in loaning you the money. In some cases, home equity can be used as collateral for bill consolidation loans, paying off medical debt, going back to school, or whatever else you decide is important to you. The vast majority of us will pursue loans for major purchases or other expenses at some point in our adult lives. Credit can be a powerful tool to accomplish our goals when used responsibly. A solid house property value can make that easier.
What Is Debt To Equity Ratio
Your house equity is also a major part of your total debt to equity ratio. Your debt to equity ratio is how much you’re worth, converted into a dollar amount and divided by how much you owe to various creditors. It’s a term used in business more often than in personal finances, but lenders will often consider your debt to equity ratio when deciding what terms to offer, or even whether or not to approve your application in the first place.
The ideal debt to equity ratio is 0 – no debt at all! That’s not very realistic for most of us, however. Most lenders consider anything below 0.4 to be pretty good, while individuals with rations of 0.6 or above may find it difficult to secure financing. Don’t think about your debt to equity goals solely in terms of the numbers. Think of them as expanding your options, giving you greater flexibility both now and in the future. Pursue your debt to equity goals because a better ration and higher credit score means it costs you less to buy a car for your partner. It means you can afford a better wedding for your child. It means you can go more places and see more things. The more effective we are with our overall home equity goals, the better we can take care of the people and things we consider truly valuable.
Personal vs. Home Equity Goals
For most of us, our homes are the single largest investment we’re likely to make in our lives. They are often our greatest investment and our most powerful source of potential wealth. At the same time, our homes are intensely personal. We care about the house market value, but it’s also where we raised our kids or spend time with our loved ones. We know it plays into our larger money goals, but in the meantime it’s where we go when we want to hide out from the rest of the world for a while. They’re very different considerations, but thankfully our goals for home improvement for the ourselves and our families and our goals for home equity can work together most of the time. Improving one doesn’t have to mean sacrificing the other.
There’s nothing wrong with looking to maximize property value as you consider your options. We’re not focusing on the wrong things; we’re being realistic when we keep in mind that for any house market value will impact our ability to borrow, or flexibility should we decide to sell, and even our credit rating – which in turn impacts all sorts of other things.
This doesn’t always mean major renovations. Protecting your current home value can begin with doing little things consistently. You immediately make your house worth more just by keeping up with normal repairs, changing filters, removing clutter, and maintaining the exterior. Maintain your lawn and landscaping. It doesn’t require great expertise to pull weeds or cut away vines threatening to block vents or mess up siding. Fix small cracks or holes before they become large cracks and holes, letting in moisture or unwelcome guests.
Location is a major factor in determining accurate property value. My house price is naturally impacted by where my house is and what surrounds it. Take care of your neighborhood. Get together with other homeowners to pick up trash, mow neglected public areas, and form neighborhood watch groups. My real estate goals aren’t just about what happens inside my property lines! I may not be able to control which businesses go in within walking distance, but I do have some impact on neighborhood schools (who always need parent volunteers). I can’t dictate whether the family down the street takes care of their pool, but I can get involved in making sure our stop signs are in the right locations and the streetlights work.
Step: Find Out Property Values to Reach Your Goals
Reaching your equity investment goals starts with knowing exactly where you are now. We said above that computing your equity is as simple as taking the most accurate home value available for your property and subtracting what you still owe. Finding out what you still owe should be easy – check your most recent mortgage paperwork or simply contact the lender. Remember that the balance you owe towards the principle isn’t the same as the amount of your payments times the number of payments remaining. Your mortgage payments include interest amortized over the life of the loan – and those don’t count.
Trying to find out property values with any accuracy can be a bit trickier. You could hire a professional appraiser, of course, but they tend to be rather expensive and their services are often booked well in advance.
You could look at your most recent property tax evaluation, but it’s hard to know of that number is the most accurate home value available or simply a means of securing income for the county.
You can’t accurately estimate your current equity or make fully informed decisions regarding how to best maximize property value without the ability to get home value calculations which aren’t based on guesswork. You can’t effectively strategize about your realty equity goals without something more precise than the estimated home value real estate agents use to formulate their strategies. The more accurately you can assess house market value for the property in question, the closer your estimate of home equity.
That’s why we’re so excited about accūRATE. We talk about accūRATE in more detail elsewhere, but for now, imagine the ability to access the detailed appraisals of professionals who’ve actually walked the property, as easily as you text your kids to make sure they remember grandma’s birthday. Imagine pulling up the same report mortgage lenders use to accurately find out property values just as easily as you map a path to the drugstore. Imagine that maybe the most accurate home value site isn’t the one with the prettiest pictures from the most angles or the friendliest agents bugging you to “chat now.”
There’s nothing wrong with those sites. They’re fun. But they’re designed to whet your appetite – not help you cook the meal. That’s why we’d insist that the most accurate home value site isn’t a flashy website at all – it’s a tool. It’s practical and powerful and easy to use. It’s designed to help you reach your realty equity goals instead of playing wishing games. It’s designed by people who believe in you instead of by people hoping you’ll believe in them.
Step: Repairs & Renovations to Maximize Property Value
Now it’s time to consider more substantial steps as part of your larger financial management goals. Strategic home improvement will almost always increase your house property value, but will they help you accomplish your realty equity goals? Will adding that deck or remodeling that kitchen improve the value of my house, or will it also help improve my financial value as well? In other words, talking dollars and cents, how do I know when a repair or renovation is “worth it”?
Wouldn’t it be nice if before you committed to a project – whether that means a trip to your local home improvement store or bids from three local contractors – you knew precisely what it could add to your total equity? Wouldn’t it be handy if you could compare the same dollar investment for three different renovations in order to determine which one would do the most to maximize property value and best serve your equity investment goals?
It’s not about the numbers telling you what to do. It’s about you making better-informed decisions. That’s a guiding conviction of ours here at Goalry – that most of us are perfectly capable of taking more effective control of our personal or small business finances if provided with the right information and insights, the best tools, and the same connections and opportunities available to others. That’s why we’re going to talk about the most effective ways to increase your owner's equity equity and how these can support your larger financial management goals. It’s also why we’re proud that we’ll soon be unveiling the EquityMizer.
If a project will cost me $10,000 to do and only raise my house price by $7,500, I may still decide that it’s worth it to me because of how much easier it will make life for myself and my family for the next several years – but I’ll know. Conversely, I might discover that investing that same $10,000 in a different part of my home could increase the market value of my home by $12,500 and decide to go that direction instead.
Technology isn’t very good at making major decisions about our health, finances, relationships, or personal happiness. What it is good at is taking huge amounts of complex information and making it available in useful formats. Having the detailed reports of certified appraisers who’ve walked the property and examined the neighborhood lets you more effectively pursue your equity goals, your investment goals, and all of your overall money goals.
Whether you’re a homeowner looking to maximize property value, a real estate agent needing to sharpen their competitive edge, or a contractor ready to update your estimates, the EquityMizer can be a game-changer. Knowledge is power, and the easier it is to access that knowledge when and where I need it, in clear, easy-to-understand formats, from any connected device, then the more power I have.
Final Thoughts
Even work done primarily for your own comfort should be considered for its impact on overall house worth. If a project will cost more than it’s likely to add to your overall house property value, it’s good to know that in advance. If using those same resources differently could help maximize property value, that would be good to know ahead of time as well.
Yes, there are good reasons to fix up or otherwise improve your home other than your desire to maximize property value. There are certainly ways to increase your current home value other than invest in repairs or renovations. Most of the time, however, when we’re considering serious work on our homes, we’re at least considering the potential impact on overall house property value. Most of the time, I can improve my home for myself and my family while still considering the impact of my choices on my house price.
Meeting our equity increase goals means improving our equity. That means reducing what we owe and increasing what our property is worth.
Sometimes, that means spending money to make money. That’s why we sometimes talk about “equity investment goals” instead of simply thinking of them as “equity increase goals.”
Strengthening our equity starts by getting the most accurate home value available, something even the most accurate home value site really only estimates.
Improving your equity means knowing before you commit how different changes will impact the bottom line – information that could only be approximated until now.
Finally, having clear investment goals and overall money goals doesn’t mean we’re focused too much on dollars and cents.
Informed, responsible financial decision-making makes it easier for us to take care of ourselves and the people we love. It can give us more options and make them easier to manage.
We can’t make it all easy, and we’ll never try to tell you what to do. What we will do is provide as much useful information as we can in plain, simple English, and offer you tools and connections if and when you decide you need them. Just because it won’t always be easy doesn’t mean it always has to be so hard, and it definitely doesn’t mean you have to figure it all out alone.
Let us know where you’d like to start.