Real estate is one of the investments that can offer high returns. But several factors play in determining how much you’ll earn. For instance, if your home’s value appreciates after a few years, you can resell it for a higher price and enjoy immense profits.
Inflation also impacts real estate prices. If you have an old property valued at $100,000 when you purchased it decades ago, its value has blown up by now, regardless of its location underwent developments or not.
And even if you’re paying for a good home loan plan, you can still earn returns. You can refinance your loan at a lower interest rate, or borrow against your home’s equity.
Suffice to say, a fortune could be waiting for you in real estate. But a windfall can make you overwhelmed, potentially urging you to spend it on items that don’t have real value. Hence, if you’re still figuring out where and how to spend your future returns, here are some smart suggestions:
Home Improvement
Another way to make money in real estate is to improve your property. Though fixer-uppers can also sell well, many buyers still prefer a place that’s ready to be lived in. But you have to consider a couple of things before spending your money.
Determine if the remodeling project will make you break even. But this can be tricky to figure since many factors unrelated to home remodeling can impact a home’s resale price. To play it safe, stick to remodels that retain high value, such as kitchen and bathroom remodels.
But before splurging on luxurious kitchen and bathroom countertops, consider whether those areas are the ones you need to improve. Maybe your roof or siding needs more attention. According to Remodeling Magazine, siding replacement can recoup 92.8% of its cost. Roof and window replacements can also yield 80% returns or more at resale.
Therefore, focus on the areas of your home that’s in dire need of improvement, and not on the ones that’ll make your abode more trendy.
Rental Property
Instead of outright spending your real estate returns, why not re-invest them? You can buy a raw land and put it up for lease so that companies who will use it can pay you royalties each time they build new structures on the land.
Or, build a new residential property and earn rental income from your tenants. The rent you receive can increase with inflation and demand. You can extract your costs from it, then claim the rest as your rental income.
Rent from a commercial property is also a sustainable income source. Like residential tenants, commercial tenants will pay you to rent monthly, and potentially more in the form of option income. These are fees for contractual options, such as the right of first refusal on the available space next door.
Your Children’s Education
One of the ways to save for your child’s education is to take out a home equity loan. But if you already earn sufficient funds from your real estate investments, then you’re in a better position, since you don’t have to borrow anymore.
You can put the money into a custodial account, a form of savings account that your child can access when they turn 18. But if you’re tapping your home equity, consider first how much equity you already have, and whether you already need it to fund your child’s college education.
Considering all of these, we can gather that our investment returns are best spent on things that will yield yet another return. They may not always be in the form of cash, such as your kids’ education, but still, the fact that you’ve put your money in the right place is already a priceless accomplishment.
