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There are no silver bullets for getting rich quick in life, but if you own a home, there are a number of effective ways to build more wealth over time.
Compound interest is a force of nature, and a few decisions that collectively help you generate an extra 2% or more in wealth per year can have long-lasting effects on your investment outcomes.
As we move into 2020, you can build more wealth by finding ways to either cut costs associated with your home or generate additional revenue through your home. Here are five suggestions on how to do both:
1. Refinance your mortgage.
The Federal Reserve has lowered interest rates three times in the past year, and all signs point to rates remaining at similar levels for the foreseeable future.
If you have a mortgage, look into refinancing. Yes, there will likely be closing costs, but if you find you can lower your mortgage by 0.5% or more, you could potentially save hundreds of dollars per month, or tens of thousands of dollars over the lifetime of your mortgage.
2. Write off everything you can on your home.
If you’re a home owner who’s been doing taxes by yourself, I’d strongly encourage you to find professional help to make sure you’re writing off everything you can possibly write off. A seasoned accountant and financial advisor can help ensure you’re taking all the appropriate deductions, and will likely make recommendations that will help you save more on taxes in the years to come.
3. Invest in preventative maintenance.
This may sound counter-intuitive, but if you spend money doing preventative maintenance on your house instead of waiting for things to break, you’ll end up saving money in the long run.
It’s hard to put a number on this, but for one example, consider your hot water heater. They’re value-engineered to last about 10 years, which is often when the warranty runs out. Some of us let them run until they die. When that happens, you can end up with several inches of water on your basement floor and staining or damaging walls, rugs and anything else you have in the area. If you live in a condo building and your water tank is on the third floor right next to your bathroom, running it until it breaks down could result in you spending many thousands of dollars on repairs.
So, it’s a good idea to know when your water tank was installed and replace it at the 10-year mark or just before. Sure, you could roll the dice and it might last 12 or even 15 years. But what would the damage cost if it fails, and how much will this interrupt your life when you wake up one day and there’s a small flood in your basement?
4. Airbnb a room when you’re in town, and your entire home when you’re traveling.
Even in cities like Boston where Airbnb laws are quite restrictive, you can still make money by renting out a room in your primary residence a few nights a month, or even renting out your entire home while you’re on vacation.
Although managing guests requires some work, the benefits can be significant. For instance, if you can rent out your place for $200 per night for the three weeks per year you’re traveling to see family or going on vacation, you stand to make a profit of around $3,000.
5. When it’s time to move, convert your home into a rental property.
Your home could very well be your best investment. When you’re ready to move, think twice before selling it. The better long-term wealth-building option for you could very well be turning your home into a rental property.
By following these five steps, you can leverage your home and ownership position to generate even more wealth into 2020 and beyond.