There’s (still) no bank like home…
When buying a house as an investment, you buy it with someone else’s money (taking out a mortgage), and then you pay off that mortgage with dollars cheapened by inflation.
For example, you buy a $300,000 house, putting $30,000 down in cash. Inflation works on the price of the house, not your down payment, so a 2% annual increase on the $300,000 is $6,000. But that $6,000 on your $30,000 is a 20% increase in your equity stake. The result is an investment that shows the multiplying power of leverage (using a little money to buy a lot of house).
Even with the decline in housing prices – perhaps especially these days – buying a house remains a very good long-term investment. Think of a house as a tax-deferred mutual fund or a certificate of deposit with a roof, one in which you automatically reinvest the annual dividends – in this case, increased value caused by inflation.
True, housing is an expensive investment. However, you can discount at least some of the monthly mortgage expense because you can think of the mortgage as rent you pay yourself. If you take the $30,000 down payment and invest it instead of using it to buy a house, you’d be lucky to get 1.5% interest (about $37.50 a month), upon which you would end up paying taxes!
Yes, we have gone back to the basics of buying a house for the quality of life it affords. But, let’s not forget too that, while the present market allows you to drive a hard bargain, houses bought at reasonable prices (with historically low interest rates) represent excellent value today.
Value Check
Each year in December, with the arrival of our property tax bill, we are once again reminded of the fact that for many of us our home is our single most valuable asset. It is important, therefore, to know the distinction between the assessed value of our home, as opposed to its “fair market value.”
Suffice to say, the two values are rarely one and the same, and there are at least two instances in which a comprehensive market analysis or an independent fee appraisal are especially warranted: 1) if you feel that your home is being taxed unfairly, as compared to similar properties in your area; 2) if you’re wishing to place your home on the market for sale.
Knowing the value of your home in today’s market can help you make important financial decisions for you and your family. If you are in need of a market analysis on your home, please know that we at Manter Realty are here to be of service.