Investment Property Equity for Landlords

Of the three methods for landlords to increase their investment property equity, making regular mortgage payments each month is the easiest. The other two methods for increasing equity are through price appreciation resulting from either:

Comparing these three, hoping for increased equity through market driven price appreciation is the least reliable. This is because, without having a crystal ball, the strength of the real estate market and economy fluctuates and is very difficult to predict.

Therefore, paying down the mortgage principal and/or making property improvements are ways to consistently increase your investment property equity.

It's nice to know that you can still increase your investment property equity without relying on factors that may be out of your control, such as the strength of the real estate market as mentioned above.

With an amortized loan, a portion of each mortgage payment is applied towards interest and the remainder towards the principal. The amount that is applied towards the principal is the portion that reduces the loan principal balance, thus increasing your equity in the property.

With each payment made on an amortized mortgage loan, the exact amount applied towards the principal varies, with the remainder being the interest portion.

Initially, a large percentage of each payment is applied towards interest. To get an idea, the first payment allocates roughly 90% towards interest with the remaining 10% towards principal. As further payments are made and the loan matures, larger portions go towards paying down the principal.

This is the beauty of amortization - a powerful, consistent way for increasing your investment property equity! But beware, it does take time for this effect to eventually take hold and really start to snowball.

If just regular monthly payments are made, it will take about 21 years until the principal portion of the mortgage payment equals the interest portion, or a 50-50 split. However, this time period can be greatly reduced by making one or two additional mortgage payments each year. That is where financial discipline and responsibility comes in handy!

An amortization schedule is a table that shows each periodic payment on a loan (typically a mortgage), as generated by an amortization calculator. For each payment the schedule reveals the specific dollar amount applied towards interest, as well as the specific amount put towards the Principal balance.

As mentioned earlier, initially, a large portion of each payment is devoted to interest. As the loan matures, larger portions go towards paying down the principal.

While a portion of every payment is applied towards both the interest and the Principal balance of the loan, the exact amount applied to principal each time varies (with the remainder going to interest).

Payment#	Principal	Interest	Principal	Interest	Principal
			to-date	to-date	balance
1	$67.09	$666.67	$67.09	$666.67	$99,932.91
2	$67.54	$666.22	$134.63	$1,332.89	$99,865.37
3	$67.99	$665.77	$202.62	$1,998.66	$99,797.38
4	$68.44	$665.32	$271.06	$2,663.98	$99,728.94
5...	$68.90	$664.86	$339.96	$3,328.84	$99,660.04
...359	$724.03	$9.73	$99,264.28	$164,155.56	$735.72
360	$735.72	$4.90	$100,000.00	$164,160.46	$0.00

So, that�s the basics of how amortization works. For more in-depth examples of how to increase investment property equity, please visit The Landlord's Library book collection. It's your one-stop source for great information on the entire subject of residential landlording.