Since 1986, by how much have home values increased? You would think that home values would have increased by at least 50-60%.You will be amazed to know that home values have actually increased 139% in twenty years. That is nearly 7% a year!
A home is a great investment. Live there and make money.
If you had bought a home in 1986 for $100,000 it would be worth $239,000. If you had lived in the home for twenty years, you would have $139,000 in equity, not counting the interest write off, and having a roof over your head. You could borrow against that amount or sell, buy a smaller home and live off your equity for a while.
The fact of the matter is just living in your home paid you nearly $7000 a year or a little less than $600 a month for 20 years. Now that's not a bad part-time job.
If you had bought a $200,000 home in 1986, you would have $278,000 in equity, paying you nearly $14,000 a year or a little less than $1200 a month. You still had a pretty nice roof over your head and wrote off your interest charges.
Had you only put down 5% when you bought your $200,000 home or $10,000, your $10,000 investment returned you $278,000 returning you a simple 2780% on return on your initial investment over 20 years and you still had that good old roof over your head.
Now some might say, yeah but the stock market returns an average of 12% a year as opposed to only 7% in real estate. But the stock market requires you to put all the money down to get the 12%. There is no leverage factor. With real estate you put $10,000 down and leverage $200,000 and that $200,000 (not just your down payment) grows at 7% a year.
With a little investment you can get a huge return. How?
Buy the biggest most expensive home you can afford, but don't buy the biggest most expensive home you can't afford. Even if you can qualify for the biggest and most expensive home, if you can't afford the monthly payments without buying less food, buying no shoes for the kids, stop watering the lawn, living by candlelight at night, and changing your lifestyle completely, don't buy that home.
Worrying each month when the mortgage payment is due is no way to live. Your home should be your castle, not your prison. You should look forward to coming home at night after work and not be worrying if there is going to be an eviction notice on your door.
Remember in order to make money you will eventually have to sell and you still have to live somewhere. When you're ready to "move down" to a smaller home or move in with the kids, that investment money will come in handy. But let's say you want to "move up" from your $100,000 home you bought in 1986 to a home that is worth in today's market $239,000. Guess what? You are living in that home! You will need every penny of your $139,000 gain plus the amount you have paid down on the mortgage to "move up." So, easy come easy go. Think about it.
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