Make no mistake, buying your first home is one of life’s biggest milestones. It often takes years spent in labour earning a sizeable income before you can amass the funds to buy a piece of property that you can proudly call your own.
And once you’ve achieved that goal, it can instil a huge sense of relief. You’ve lived in that home for many years, and it has seen through countless phases of your and your family’s growth.
That said, there will come a time when you’ll think of your home as something more than just a house for you to stay in. You may eventually realise that the house has the potential to become a long-term financial asset. And stars may align for you to take that leap: whether it’s the call to move to a new place or an interested buyer eyeing your home for a price you can’t refuse.
If you’re interested in maximising your house’s profitability, then strategising and setting your home up for financial success is key. This article will help give you a glimpse of what’s to come after you’ve purchased your first home and taken the first steps to convert it into a financial asset.
Let’s jump right into it.
How Property’s Value Is Determined
Before delving into the wealth-generating aspects of your current home, it’s crucial to first understand how property value is measured. This directly ties in to how it will be perceived in its respective property market.
There is a combination of factors in play that affect the property’s value.
For instance, location plays a big role, as proximity to the city and amenities like schools and commercial districts can raise the value of the house quite considerably. This is especially true in metropolis locations within a train line of the CBDs of Sydney and Melbourne. If you’re researching where to buy, it’s worth looking at the best suburbs for capital growth to understand which locations are consistently outperforming the market.
Another factor that affects property value is the property layout itself. If it’s a big house with a spacious yard, then the property value will be on the higher end. Any refurbishments and fixtures that have been added to your property can also increase its worth by a few thousand dollars, depending on the quality and condition, once the property is on sale.
The prices of other houses within the area can also be an excellent gauge to base your pricing assessment on for your property. The state of the housing market, demand, and supply lines can also influence market value. Everyone’s houses have different values naturally, and you can find out how much equity you have with online tools.
As seen, there are a lot of factors that can influence a house’s price. But one fundamental truth tends to persist: a house price appreciates over time. So the price that you’ve bought your first home for will likely sell for a much higher price.
What Happens After Buying A Property?
Most homeowners buy a property via a down payment and a mortgage contract. The norm is for prospecting owners to deposit 20% of the property’s purchase value to lock in the property, then pay the remaining amount through a repayment deal over a span of a few years.
During the start of your stay, you can live in the home, but technically speaking, 80% is owned by the lender. Over time, as you pay off your mortgage, the balance shifts and you’ll gain a higher ownership share bit by bit until the mortgage is fully paid off. Once it’s paid off, the property is rightfully yours.
This concept is important to understand because of a term known as home equity. Each mortgage payment reduces the principal slightly, gradually increasing the share of the property that you own.
Home equity also rises as the property price goes up. This is why many homeowners eventually see their property as more than just a place to live, as they don’t have to do anything but simply hold onto their assets and wait.
But why is raising home equity important? What can it achieve aside from simply raising a speculative price? We’ll get into that below.
Leveraging Home Equity
One of the most strategic ways of passively reaping value from your old home is by leveraging its home equity when borrowing a loan.
Home equity, in more definitive terms, is the difference between the property’s market value and the mortgage that you have yet to pay off. As you continue making loan repayments and as property prices rise, your home equity increases correspondingly.
This growing value can later be used to support other financial opportunities. Some homeowners refinance their mortgage to access part of their equity, while others use it as leverage to invest in additional property, fund emergencies, or renovation projects.
That said, you’re not going to get 100% of your total equity in one go. You’re often allowed about 80% of home equity from lenders, though the final amount will ultimately depend on your credit profile and final assessment based on loan-to-value ratio metrics.
In any case, if you want to quickly access funds to finance a future purchase, like locking in another property before it inevitably rises over time, then leveraging home equity is an excellent way to go about it.
3 Other Ways to Convert Your Home into a Financial Asset
Besides leveraging home equity, there are other ways you can make your home generate money.
If you’re on the lookout for ways to do that, then here are a few ways you can get this done.
- Rent Out Part of Your Property for Income
A straightforward way to generate income is by renting a portion of your home—or the entire home—to tenants.
Homeowners can turn their house into a space where other people can live. This is particularly ideal if you have children who have moved out or have spare rooms, such as an attic or a basement.
Renting out a spare bedroom can offset mortgage repayments and create a steady cash flow. It’s a great way of generating some money without resorting to contacting lending companies or taking out a loan from financial institutions.
- Renovate to Increase Property Value
Another way to transform your home into a money-making asset is by renovating parts of it to increase its market value. There are many ways you can renovate and improve your home, and simple projects can significantly boost your property’s resale price.
For instance, you can consider improving the kitchen and bathroom floors. If you’re working with a tight budget, a bathroom renovation under $10,000 can still deliver a meaningful uplift to your home’s appeal and value. You can also senior-proof and child-proof the living spaces to make them more family-friendly. You can also switch to sustainable lighting alternatives to reduce electricity bills.
In any case, renovation projects help keep the home in good working order. This can attract potential buyers and help you command better prices when you do decide to advertise it in property marketplaces.
- Sell The Property Outright
And finally, one effective way of earning money with your first home is by liquidating it as is.
If you have a big, clean, and aptly-located home, then there’s bound to be an interested party looking to buy it off of you for the right price. The great thing about this is that you’ll often get a much better deal than what you initially bought it for. You can also set the price and negotiate for better offers.
If the market conditions are favourable, the sale of a home can generate a substantial return compared to the original purchase price. The money can be used to fuel other purchases or to pad your savings.
We hope that we’ve helped you gain deeper insights into how you can leverage your first home’s earning potential. All the best in making money out of your first home!
Disclaimer: The information in this article is general in nature and is not intended to be financial advice. It does not take into account your personal objectives, financial situation or needs. You should consider seeking independent advice before making any financial decisions. Any links to third‑party products or external websites are provided for information purposes only.
