Why Buying a Home is a Good Idea
The Greatest Investment!

As a fairly general rule, across the country 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. California has more rapid appreciation due to high demand and lack of area’s to develop new housing. According to the California Association of Realtors 2004 averaged 22% appreciation and 2005 is projected to average 15% (see 2005 Market Projection on menu to the left). When you crunch the numbers and compare your amount of cash down to your return in appreciation, not to mention the tax benefits, you quickly realize why real estate can be your greatest investment.

Let’s take a look at appreciation at the national average of 5%. 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 $500,000 house, you did not pay cash for the home. You got a mortgage, too. Suppose you put ten percent down – that would be an investment of $50,000.

At an appreciation rate of 5% annually, a $500,000 home would increase in value $25,000 during the first year. That means you earned $25,000 with an investment of $50,000. Your annual "return on investment" would be a whopping fifty 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.
And the best news…

Let’s look at another example...

We buy a $300,000 condo with 5% down and lets say for 2005 it appreciates at the projected rate of 15% no more, no less. Your 5% down investment is $15,000 and your appreciation is $45,000. That’s a return of 300% on your money down.

Your rate of return when buying a home is higher than most any other investment you could make.

Investment Property as a home

Let's say you really want to put this leverage to work for you and you have some money to invest. It is possible to purchase a 3-4 unit property with 10% down. Or a 2 unit duplex with 5% down. Let say you purchase a 4 unit property for $850,000. That would be $85,000 down. Then you have three of the units rented to pay for 75% of the mortgage and property tax on the property. If the property appreciates at 10% you are using leverage to appreciate at the rate of $85,000 a year. You are doubling your cash down the first year alone. Keep in mind however that with renovations and rapidly appreciating neighborhoods (most at 20% in Los Angeles for 2003- 2004) that your return can even be greater than this.

All along you are getting a tax deduction for living there (ask you accountant for details of how this breaks down in on your return) and a tax break for any renovations off you gain. These factors combined make it an amazing way to invest and develop equity wealth rapidly by using the leverage of rental income.