Most Real Estate agents talk about the average appreciation of a home in terms of what it will be worth based upon the anticipated selling price. Team Sumberg has found that expressing it in terms of Rate of Return presents a more practical picture. After all, we use similar concepts when dealing with investment property or any other investment. Haven’t we all said many times that for most americans their home is and will be the biggest investment they will make in their lives? Read on.
Even when the housing market recovers, home price growth will be only 4 to 6% per year — much less than historical average returns for the stock market, right?. Most buyers put less than 20% of their own money into a home purchase; this borrowing power can translate to a greater rate of return. This is how an investor looks at it: Home price appreciation historically has been about 1 to 2 percentage points higher than consumer price inflation, which translates into about 4 to 6% per year. But this growth rate cannot be viewed as a rate of return like the stock market. The reason is that most people do not buy a home for all cash, instead making a cash down payment and borrowing the rest. The leverage this borrowing creates can magnify returns — and losses. If price growth returns to historic norm, the price growth of 4% can easily turn into 20 to 30% rate of return if the home buyer makes a down payment of 10 or 20%. TIP: Get the fundamentals right when investing in real estate.
