As the years go by, you may aspire to grow your net worth.
The road is different for each person.
In my situation, it meant earning a college degree to land a good salary. It also meant deploying money to grow more of it over the long-run.
With many ways to increase your net worth, let’s discuss two tangible types of “equities” – Real estate and Business equity.
Two Ways To Build Equity Without The Stock Market
Real Estate Equity
Depending on who you ask, a personal home may/may not be considered an investment.
It depends largely on the circumstances.
Was the intent to produce a profit by fixing and flipping? How about renting out the house for cash flow?
If your goal is to build equity in real estate, it becomes less important whether you own the home for personal OR for investment-related reasons.
Real estate equity is the difference between what the property is worth less the amount owed on the mortgage. This equates to how much you actually “own”.
Here’s a simple calculation. Let’s say the market value of your home is $150k. Based on your mortgage statement, you owe $100k to the bank. This leaves you with equity of $50k.
There are 2 ways to build equity.
#1. Increase the value of the property.
This can come in the form of home improvements, upkeep, home value appreciation.
In my situation, I own a small home that is part of a growing city. The home value has steadily increased in the past 13 years. In the next year or so, my household plans on using it as a rental property to increase passive cash flow.
As you can see, if the numbers work out and your personal home proves to be profitable as a rental, you can decide to turn it into a true investment property.
Related article: Renting For Profit? Tips To Get A Qualified Tenant
#2. Decrease the amount owed on the property.
Each month that goes by, the mortgage payments that you make will reduce your principal a small amount at a time.
Let’s take a look at the amortization table below. It shows an inverse relationship between interest and principal.
Each month, when the $950 is paid to the mortgage company, the amount applied to interest goes down. Inversely, each month the amount applied to principal goes up.
This is where the hard work that’s put into a business results in an increase in value.
Business equity is the difference between total assets less total debts and liabilities.
Many business owners starting from the ground up would likely call this “sweat equity” – and very well they should.
One of the best aspects of owning a business (as it relates to making money) is that you’re in a position to grow your revenues through your efforts. This is compared to being an employee at a Company where your salary and bonus is typically capped.
If you’re weary about starting your own business from scratch, I can relate.
Good news – not all successful businesses are run by the original Owner/Founder.
There are marketplaces to purchase existing businesses in the brick-and-mortar or online space.
These businesses are sold for various reasons (retirement, life changes, health), but it presents an opportunity for people that want to own a business but don’t have the skills, knowledge, or desire to start one from the ground up.
Here are a few tips to get you thinking about acquiring your own business:
#1. Determine how much you want to spend. Successful existing businesses are generally more expensive than starting one from scratch. There are certain businesses that qualify for small-business loans backed by the SBA. Keep in mind that you will need to fund a percentage as a down payment.
#2. Figure out what type of business you want to run. Think about the structure – franchise, stand-alone, brick-and-mortar, e-commerce, employee-run, absentee-owned, etc.
#3. Do your research and due diligence. Review financials with a critical eye, as well as business operations. Get everything in writing ie. non-compete agreements, training committments, verbal promises, etc. If you need help in this area, seek the help of an Attorney and CPA.
If you’re searching for a way to be in control of your earning potential, a business opportunity may be the answer to control your destiny personally, professionally, and financially.
Related article: Invest Money: Smart Ways To Build Wealth
Owning real estate property and/or starting a business are viable options if you’re seeking an alternative to your current money-making endeavors. With both options, learn before you jump!
*As with all financial and investment decisions, consult a professional. Read disclaimer here.
Full-Time Dollars (FTD) is dedicated to providing insights and resources to help you achieve your financial goals.
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