Why Buying a Home is a Good Idea
The Best
Investment
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 $200,000 house, you did not pay cash for the home. You got a mortgage,
too. Suppose you put as much as twenty percent down – that would be an
investment of $40,000.
At an appreciation rate
of 5% annually, a $200,000 home would increase in value $10,000 during
the first year. That means you earned $10,000 with an investment of
$40,000. 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 a home is higher than most any other investment you could make.
©2000 by Terry Light and RealEstate ABC, revised 2004 |
