Home as Investment

Posted: May 3rd, 2012 by Brad

It’s often said homeownership is the American dream and the safest place to invest one’s earnings. No doubt, owning real estate for most is the single greatest purchase endeavor they’ll undertake in their lifetime.
 
Whether real estate is a good investment depends primarily on one variable factor; time. Many homeowners were injured by the last run-up on the market simply by going in with a short term mindset. Real estate was, for a brief time, commonly considered a quick way for the masses to generate wealth. From approximately 2002-2006, homeowners and investors alike realized up to a 60% ROI within a couple years.
 
Yes, market values fluctuate up and down. Though the eventuality of the market historically trends on a growth trajectory. Even considering fluctuating values, it’s not so much real estate isn’t a good investment as much as it is a longer term investment. If one is planning to hold real estate for say a five to eight year period, they’ll likely realize a substantial sum of equity through appreciation.
 
The average rate of U.S. real estate appreciation from 1950 to 2002 is 4.8 percent per year, according to statistics reported by E. H. Boeckh and Associates, BLS, Census Bureau and Freddie Mac. Even at four percent per year, the average rate of home appreciation keeps pace with inflation. Additionally, an affordable four percent fixed-rate mortgage, for example, is a great way to hedge inflation by creating a relatively low set monthly cost for housing.
 
For savvier homeowners who know they will only hold the real property for a finite set of years, an ARM (adjustable rate mortgage) may be the way to go with rates fixed for between three and ten year terms below three percent. In this case the average rate of appreciation could actually translate to paying someone to own.
 
Certainly the mortgage interest deduction is arguably the single best tax break ever.
 
Just like the stock market, real estate values are completely imaginary until a transaction occurs. Also like the stock market, it’s always most advantageous to buy low and sell high. Historically, the most effective way to achieve this in real estate is by acquiring and holding the asset longer term.

One Response to “Home as Investment”

  1. May 07, 2012 at 12:38 pm, top products reviews said:

    Very great post. I simply stumbled upon your blog and wanted to say that I’ve truly enjoyed surfing around your blog posts. In any case I will be subscribing to your rss feed and I’m hoping you write once more soon!

    Reply

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