Building Long-Term Wealth With Your House

I know you want your children and grandchildren to live happy, healthy and prosperous lives — and through your home and property, you can take steps to providing that security! Click through to learn how you are already positively impacting the next generations' wealth.

 

Often people ask me, "Theresa why did you become a Realtor®?" And my answer, "well because its in my family blood!" Real estate is one of the largest assets people own. Real estate tends to appreciate over time, so with care, home equity can be the foundation for your family's fortunes, resulting in profits that can affect your children's and grandchildren's wealth. I am living proof that owning real estate can put you on a path to growing generational assets. On both sides of my family it was instilled in me that "you can't make land" one of the safest investments is usually real property.

Home equity

Why all the buz about home equity? Home equity is the portion of your house and property that you own; it is not the full value of your house, but rather the house's current market value minus any outstanding mortgage debt. When you borrow to buy a home, your initial equity stake is usually just your down payment. Over time, your home equity increases as you make mortgage payments and as your home's market value hopefully climbs.

You might look at your monthly mortgage payment as a forced savings account: You're investing for the future. When you make home improvements — remodeling the kitchen or adding energy-efficient features that provide tax deductions — you improve the property's appeal and thus its marketability.

Your equity is your real financial potential! On top of it being a type of "forced savings account, "it is an asset that can be borrowed against or sold for profit. It is an asset that you can use essentially at anytime and usually with lower financial consequences than a credit card for example. You can tap into that equity through a home equity loan or line of credit, or with a cash-out refinance, perhaps getting better interest rates than on a personal loan. 

Transferring home equity to your descendants

If you include the house in your estate, bequeathing it to your children, you can pass along this wealth to your descendants. Your descendants might choose one of several options:

• They might sell the house.
• They might make it their primary residence, especially if they have affection for the house, perhaps because they were brought up in it and/or have some appreciation for what you did to acquire and maintain it.
• They might choose to rent out the property, making it a potential source of passive income.

Including the house in your estate can both improve bonds between generations and provide for the younger generation financially, as they will be able to leverage the home's equity for their own purposes.

How do you pass your house and its equity to your descendants? There are a few options:

• You can leave it to them in your will. This document includes instructions to distribute your assets, such as your house, to the beneficiaries you choose.
• You can create a trust. This places your home in a legal entity that you create. The trust takes title to the house and then distributes ownership to your designated beneficiaries when you pass away or at a date you specify.
• You can create co-ownership of the house. Joint tenancy puts your heirs' names on your deed. Full ownership of the home passes to them when you die. There may be gift tax consequences and your heirs may pay more in capital gains tax if/when the property is sold.
• You can create a transfer-on-death deed. For this, you designate a beneficiary as you would for an insurance policy or investment account, and your home goes immediately to your heir on your death. It's efficient and avoids federal gift taxes. However, many states don't allow this type of deed.

For best results, be sure to work on your home and generational wealth issues with legal and financial professionals. Not all options are good choices for all families.

Owning a home is a cornerstone of the American dream; it can also be a tool for building generational wealth. Your house can give your children a financial advantage, as it allows them to combine your property with whatever they have made on their own. When you establish home equity, you create a lasting financial legacy for your family, setting up your heirs for long-term success.

I love to share more of my own family history and how owning real estate changed my life and made it my life's passion to help others establish their own American dream!

Modified by: Theresa Tscheschke Gunal to reflect Colorado local Real Estate ; Used courtesy of Racel Lefkowitz, Home Actions, LLC