There are many reasons you may want to increase your house value. The most popular of these is to increase the equity. By increasing the equity in your home you are able to either sell it and take the increased profit or increase the mortgage on your home. Many people find the idea of increasing the mortgage on their home contrary to what they’ve been taught since childhood. Usually we are brought up with the mindset that we have to pay off our home mortgage as soon as possible and although this is a tried and true philosophy, it is not always the best one. So why would you want to increase your mortgage or create a new one? It gives you access to the money tied up in the value of your house.

How Do the Foolhardy Use the Money They Have Received

Now the foolhardy will use this money to buy a new plasma television followed by that wonderful trip overseas for six weeks and a new top of the range 4 wheel drive when they return. At the end of that time they have blown close to a hundred thousand borrowed dollars and are left with no tangible assets and a bigger loan to pay off, let alone the increased interest payments. They will justify this with the following reasons:

1. They needed the holiday and the break will allow them to come back refreshed and able to work harder. This is a reasonable justification since breaks are necessary to stop from burning out. But it can be achieved by spending a week up the coast camping or in a comfortable, yet inexpensive motel within driving distance. It is usually possible to fit a holiday into most budgets without the need to draw down on your mortgage.
2. The plasma television will save them money since they won’t need to go out for entertainment. This is simply false economy. Most people who use this excuse generally run their life based on their feelings and if they feel like going out instead of watching television, they’ll go out anyway. Anyhow, it is not necessary to have a plasma TV – an older style flat screen TV will do just as well.
   
3. This last one can have several reasons –

• a) Our current car breaks down all the time and so it will be more cost effective to buy a new car as we won’t have to pay for repair bills anymore. This is actually a good reason to buy a car except that a second hand car up to 3 years old will do just as well and it doesn’t have to be an expensive car. For example a Toyota Corolla will set you back about a third the price and is far more fuel efficient, saving you money on petrol.
• b) We have a baby that will be safer in the 4 wheel drive. Again this is a justification that plays on emotional fear. It sounds reasonable but the reality is it’s highly unlikely you’re going to have a car accident if you drive carefully and if you allow fear to rule your finances, you’ll never have any.
• c) The 4 wheel drive is an asset anyway so it doesn’t matter. This is one of those reasons that tricks up many people and requires a definition of what a true asset is. A true asset appreciates in value and gives you a net positive return on your investment either during ownership of the asset or upon sale of the asset. It is extremely rare that motor vehicles appreciate in value and they don’t by themselves create income while you own them. Hence, once you’ve added up all the expenses and take into account the lower selling price when you sell it, motor vehicles will nearly always cost you money. This is particularly the case with cars bought brand new where it is estimated they lose around 25% of their value the moment you drive them out of the showroom. The only case in which cars may appreciate in value is with certain vintage cars – but you have to know what you are doing and usually you won’t want to be driving them around in day to day life.

How Do the Wise Use the Money They Have Received

So what do the wise do with the money they have drawn down on their house. That’s simple. They invest that money in another true asset – usually either property or shares. I have only a little experience in shares so I will primarily talk about property in which I have a great deal of experience.

To give you a very rough example of how this works, lets say your house is worth $300,000 and you have a mortgage of $240,000. That’s 80% of the value of your house. Lets say by spending $10,000 on your house, you can add $60,000 to the value of your house taking it to $360,000. You could now sell it for that and gain $110,000 less expenses (e.g. selling costs, capital gains tax). Alternatively, with the increase in value, your mortgage is now 67% of the value of your house. You can draw down on the increased equity by increasing your mortgage back up to 80% which gives you an additional $48,000 in your hand:

80% x $360,000
= $288,000 (new mortgage) - $240,000 (original mortgage)
= $48,000

This $48,000 can then be used as a 20% deposit on a $240,000 property. Keep in mind that you still have to pay interest on that additional $48,000 borrowed along with the remainder of the amount borrowed to buy the investment property. But hopefully the new investment property will appreciate in value and can be rented reducing the overall cost of the investment. Then as the years go by, the property continues to increase in value while the mortgage decreases. Also remember that there are many other factors here to take into account, so before doing anything like this, do your research and talk to a financial advisor.

How Do You Increase Your House Value

So how do we increase the value of our house in the first place? Well here are some ideas that may prove useful. Remember that we are trying to add as much value to our house whilst spending as little as possible.

1. Do a basic cleanup. I know it’s simple but it works. Go over the house with a fine tooth comb – clean the kitchen, scrub the floors, clean the stove, clear out all the rubbish, mow the lawn and prune the trees.
2. Do some painting. Now you are ready for some serious value adding. One of the easiest ways of adding value to your house is to paint the interior. You can get painting professionals in to do the job and that would set you back somewhere around the $4,000 to $6,000 mark depending on the size of your home. Alternatively you can do it yourself which will take you around one to two weeks and save several thousand dollars. Look here for a guide to painting walls and ceilings.
3. Next look at renewing your fixtures and fittings. These include light switches, cupboard handles, door handles, light fittings and tapware. It’s these details that will give a new atmosphere to a room.
4. Renew the flooring. This is particularly necessary if you have old carpet, linoleum or laminate. If you have genuine floorboards that are looking worn it may be worth getting them sanded and varnished. Otherwise, there are many reasons for installing bamboo hardwood laminate flooring as they are an excellent alternative for renewing the floor of your house. The advantages of this type of flooring include the lower cost, the attractive product and being able to install it yourself.
5. Do some gardening. The garden contributes to the first impressions of your house so it wise to have a lovely looking garden. Weeding is a must as out of control weeds are an eyesore and give the impression of a house that is being let run down. Next it may be worth buying a few more plants to compliment what is already there.
6. Usually it’s not worth completely renovating the bathroom or kitchen, due to the cost involved in so doing unless they are completely horrid. A more cost effective alternative is to give them a facelift. For example it’s possible to get professionals to resurface the porcelain. They do this by spraying a compound over the surface. This can also be done over the tiles effectively renewing the entire bathroom at a fraction of the cost. A new vanity, taps, mirror and a new toilet seat and your bathroom is looking as good as new.

Hopefully this has been helpful as an introduction to the financial reasons, both wise and silly, why people increase their house value and how it can be done.