“Never underestimate the power of purpose; it is the driving force of success!” – Anonymous
Even though I’m no longer a homeowner I still love watching the home renovation shows on TV; there’s something almost magical about the way one person’s vision can transform the most terrible looking space into something that looks like it belongs on the pages of a magazine. I enjoy the creativity that goes into developing the project and the way the designers have to constantly battle with both the homeowners and the unexpected hiccups that inevitably crop up along the way. The part I like most though, is seeing how each project adds value to the home and weighing up whether the investment justifies the return. I’ve noticed recently though, that when it comes to renovations that involve turning all or part of a home into an income property the potential rental income is often pitched as a way for the homeowner to reduce their own mortgage payment rather than as an additional income stream that can be purposed for something else. While it’s definitely true that turning part of your home into a rental property can make home ownership more affordable it seems to me that it can also be a great way to build wealth and greater financial security.
Related article: Lessons from home ownership
I have friends who purchased a home just after they got married. The husband had bought his first rental property several years earlier at age 19 and so it made perfect sense to him for them to buy a home that had either an existing basement apartment or the potential to easily create one. They found a house that would be big enough for the family they hoped to have, renovated the existing basement apartment and rented it for $600/month to a great tenant. It would have been very easy for them to have used that income to reduce their own mortgage payment but my friends decided instead to take the attitude that, as they were both earning more than enough to cover their living expenses each month, they would save the rental income and use it to pay down their mortgage faster. This turned out to be an excellent idea; their tenant ended up staying in the apartment for 10 years and the rent that he paid knocked an additional $72,000 off their mortgage, saved them thousands more in interest and allowed them to become mortgage free years sooner than they would have.
This is a great example of the power of purposing your money and a great incentive to apply your creativity to thinking of different ways that you can create passive income streams or generate additional income that can be put to work creating future wealth. Whether it’s buying an income property, investing in someone else’s business, taking on a second job or building your own business in a manner that will allow you to sell it at some point in the future, there are plenty of ways you can plant seeds now that will bear fruit in your retirement years.
Sometimes the best way to uncover these ideas is to talk to people who’ve been successful or who have the benefit of hindsight. The reason my friend decided to buy a house at 19 and rent his spare rooms to friends was because he was working at a company where most of his fellow employees were in their 50s. As he chatted with them each day at work, he would often hear them comment that they wished they’d been smarter with their money when they were younger and spent more on investments and real estate and less on beer and vacations! He took their comments to heart and applied the benefit of their hindsight to building his own financial security.
Related article: Do you have a money mentor?
I talk to people every day who share stories of their own success and those of people they know; sometimes you can learn just as much from stories of things that didn’t work as you can from stories of those things that did. Why not try initiating those conversations amongst your own circle and see what ideas you can uncover? You may be surprised at how much of an impact re-purposing your income can have over time and how much of an impact it could have on your own financial future.