So What is Equity Buildup?

Building wealth. A simple statement. Everyone wants to "build their wealth", or just simply "get rich". One of the most widely recognized paths to this wealth building has historically been through Real Estate Investment. I use the word "path" delicately as the road to real estate riches is not normally one of "overnight success". It has long been, and continues to be, one of the surest paths to wealth. It can be a sure path if you do your homework, and it does involve study, planning, research, some degree of risk, and most of all, a plan of action. Nothing happens without taking action. So, how does the term equity buildup apply here? Equity is the difference between what is owed on a property (the mortgage or the loan) and the actual market value of that property, or what it will sell for. It's the cash you take away from the closing table after you've sold the property. Before you cash out it is equity.

Now that we have defined equity, we can talk about equity buildup. One of the most powerful tools in acquiring wealth through real estate investment is equity buildup. How does it grow? It can happen naturally, or it can be forced. When it happens naturally, it is generally over a longer period of time, and is the result of natural appreciation. Buy a property, hold it for a long time, let the rental income cover the mortgage, taxes and insurance, and then sell it for more than you paid for it. Many people have use this method as a means of building a secure retirement portfolio.

The second method, or forced assessment, occurs as a result of specific actions on the part of the investor, and can happen using several different methods. You can buy right (right meaning low) and have instant equity, you can buy something in need of repair and improve it – thereby creating instant equity, or you can build it from scratch and sell it, also creating instant equity. Any of these last three ways are generally used to develop fast real estate cash. By far the quickest of these is to simply buy a property in good shape, from an extremely motivated seller, and then re-sell it as soon as you can for a short term profit.

Buying a property to fix up or "rehab" as it is usually known in the business, is the second quickest. Buying a piece of land, building a house, and then selling it would come in third. Any of these three can usually be accomplished in less than a year. Buying low and immediately re-selling could be anywhere from a day to a few months. It all depends on your methods of marketing. One other way which does not involve equity buildup- but can produce quick cash, is called "assignment of contract". Contract for a property, add on a small profit, and sell the contract to a buyer who wants to do any of the above. That's a whole separate subject, and will be covered in another article.

I've purposely left out any quotes of profit numbers here, as they can range anywhere form a thousand to five thousand or more for a simple assignment, to that much up to even six figures on any of the other methods. It all centers around your market, your research, your savvy, and your exit strategies.

If you'd like to learn more about these, and other helpful strategies, visit my website, as shown below.

Source by Michael T. Perry