| 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.
copyright
2000 by Terry Light and RealEstate ABC, revised 2002
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