6 Ways to Make Your Home Into an Investment

By Aja McClanahan on 29 January 2018 0 comments

Owning a home can be a great investment — if you do it right. Yes, having a nice, safe place to live for 30 years has its benefits, but there are drawbacks, too. Depending on the price you pay for your home, the appreciation rate, and other factors, you could end up with a negative return on your investment.

If you're smart, you can actually use your primary residence as an investment and bump up your potential returns. The even better news is that banks will finance a home purchase more favorably than any other business investment. Unlike a small business or purchasing securities, you can get a home loan with little to no money down.

If you’d like to use your home as a wise investment, there are a few moves you can make to help your returns go further.

1. House hacking

House hacking is a term that means getting tenants to pay for not only their own living space, but also yours. One form of house hacking involves living in a home and renting out rooms. With this method, you can choose how many rooms you rent out and how often. The idea is to cover more than the cost of the rooms you’re renting out. In the best of all possible worlds, you’ll bring in enough to pay the whole mortgage.

Alternatively, you can purchase a multiunit property, live in one unit, and rent the other unit(s) out, again, at a rate that’s ideally high enough to cover the whole mortgage. As long as you get a property that has no more than four units, you can get a residential loan with options for a lower down payment. Beyond four units, you’d be subject to commercial financing, which requires much more money down.

2. Get a HELOC

If you’ve got equity in your home (the difference between your home’s market value and the remaining loan balance), you might be eligible for a home equity line of credit, otherwise known as a HELOC. Banks will give you anywhere from 70 to 80 percent of your home’s equity in the form of a line of credit.

You can use this money for various purposes, but a common use of a HELOC is investing in more real estate. This additional money can be used to purchase and renovate additional properties that you can either sell for a profit or keep for rental purposes. (See also: Home Equity Loan or HELOC: Which Is Right for You?)

3. Make a low down payment

Though this is not always a good strategy for the long term, you can use this method to capture a good return on capital in some cases. This works best in a scenario where you will be able to get revenue from your property rather quickly — say, profits from an immediate sale or by renting out the property.

A simple example would be purchasing a home that requires $5,000 for the down payment and closing costs, but earns you $3,600 a year after you’ve paid all expenses. By year two, you’ll already have netted $7,200, which is a 144 percent return on your initial capital investment of $5,000.

4. Buy low, sell high

Looking for a deal in real estate requires patience, luck, and diligence. By the time properties are advertised, they may already be priced at or above market value. However, if you’re lucky enough to find off-market deals that are priced well below market value through your network of friends and acquaintances, you may be able to actually walk into a deal with equity.

A very simplified example would be purchasing a home worth $150,000 for $100,000. If you were to pay $10,000 to cover the down payment and closing costs, and sell the property right away for $150,000, you’d quickly receive a 500 percent return on your $10,000 investment. (See also: Sell Your House Faster With These 6 House Flipping Tricks)

5. Improve your home

Although most home remodeling projects won’t pay for themselves through a higher sales price for the house, some renovations in some markets will.

To find out what renovations will offer the biggest bang for your buck in your real estate market, check out Remodeling Magazine's 2017 Cost vs. Value Report. Typically, bathroom, kitchen, and basement remodels are all things that can boost the value of your home. If you choose wisely, you may be able to increase your home’s value at a faster rate. (See also: 5 Home Renovations That Could Hurt Your Home's Value)

6. Add solar panels

There are multiple ways you can come out ahead with the installation of a solar panel. Depending on whether you buy or lease your solar panel system, you can receive tax credits, save on utility bills, and capture potential appreciation on the resale of your home.

The only caveat to adding solar energy is that the installation itself can be quite costly. Plus, the amount of energy your system produces will depend on many things — from geography (sun exposure), to the architecture of your roof, to even the state you live in.

However, for many homeowners, it can be worth the investment, especially if you are planning to stay in your home for a number of years. Use a solar calculator to find out if owning solar panels will earn your home a worthwhile return on investment. (See also: How Long Does It Take to Break Even With Solar Panels?)

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