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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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