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How to Earn Equity on your Rental Property

Equity on your Rental Property

For those of you who have bought your own home, you know that owning and managing one property is difficult enough. But landlords have to keep up with multiple properties, sometimes spread across vast geographical distances. In practice, rental properties aren’t so different from a typical single-family residence or condo. A landlord must maintain the property and its structures, they must pay monthly utility bills to receive water and electricity, and they must pay a mortgage to build their equity in the property. It’s a full-time job all on its own.

Let’s return to the topic of equity. This term is thrown around quite a bit in the world of real estate, but let’s define it here. Equity refers to the homeowner’s investment and ownership in a piece of property. This is directly linked to mortgage payments, which are designed to help the homeowner build more equity over time. So with multiple properties to manage, how do landlords earn equity on their rental properties?

As alluded to near the beginning of this article, it’s not so different or complicated as you might think. The important thing is to understand what factors directly influence equity and calculate every decision carefully. To begin, pay off your mortgage every month. This will automatically bring you closer to your goal. When you first invest in a property, consider making a larger down payment to solidify a significant portion of your equity right out of the gate. Then, consider a shorter term when it comes to mortgage payments. For example, rather than choosing the 30-year financing option, go for the 15-year investment plan. This will help you build equity faster. Finally, make extra payments if you are able. While the income from rental properties is often used to finance maintenance and repairs, set aside some funds to give yourself a head start.

Equity is calculated by subtracting the amount you currently owe in home loans from the current market value of your home. Naturally, as the appraisal value of homes increases, your equity will increase as well. This is why it’s crucial that you continue to make regular payments on your home and diminish your mortgage loans as consistently as possible. Begin by following the tips in this article, and hopefully you begin to see your property investments steadily increasing with each passing month.

For more tips and real estate advice, follow the Talley Properties blog.

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