As a fairly general rule, homes appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region. Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds.
But take a second look…
Presumably, if you bought a $2,000,000 house, and you did not pay cash for the home, you’d get a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $400,000.
At an appreciation rate of 5% annually, a $2,000,000 home would increase in value $100,000 during the first year. That means you earned $100,000 with an investment of $400,000. Your annual “return on investment” would be a whopping twenty-five percent. Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.
Your rate of return when buying real estate is higher than most any other investment you could make.
This is also commonly been referred to as “The Home Wealth” Effect.
Contact Maddison Estates To Buy, Sell, Or Build Your Dream Home!
In America, the most common way to accumulate wealth is through home ownership.
“Unrealized wealth” just means your house is worth more than what you owe on it. This is also called “equity.” Savings. You own an asset that appreciates in value.
Over the last year, the “average” house increased 7.1% in value by doing nothing more than making a mortgage payment (plus taxes and insurance). Since interest and property taxes reduce your taxable income, the federal government is subsidizing this increase in “home wealth.”
Three out of four homeowners say their “home wealth” is greater than their “stock wealth.”
The most common way to “tap in” to unrealized wealth is to refinance and pull cash out of the home, get a home equity line of credit or sell your home. At least forty percent of those who sell their home use some of the money to buy a bigger, better, or newer home. Renting does not accumulate wealth.
Buying a home is probably the most important investments you’ll ever make. Don’t leave it to chance. Contact a real estate expert now for a better understanding of the local market and homes for sale in Beverly Hills. Contact LeMark Realty for ALL your real estate needs. Call 877-773-7331 today!
© copyright by RealEstate ABC.