Home Buying Advice - Is Real Estate a Good Investment

Is Real Estate a Good Investment

History shows that on average homes have increased in value about five percentage points each year. Obviously some years will be more, and some will be less. This figure also varies from area to area.

This may not seem like that much, for example, investing in the stock market should get you more.

But here is where a property investment differs from stocks and bonds

Most people if they buy a property, do not pay for the home using cash. You have a loan with some kind of down payment. For example, if you put 10% down on a $100,000 house your total investment is $10,000.

Given an growth rate of 5% per year, a $100,000 home would see an increase in value $5,000 in the first year. That means for an investment of $10,000 you potentially earned $5,000. Thus your "return on investment" for the first year would be a 50%.

Of course it is not that easy there are other costs to take into account. You have maintenance costs for the home, insurance, property taxes, and last but not least the actual mortgage payment. However, you can claim tax deductions for the interest on your mortgage and your property taxes. Also if you were not paying a mortgage the chances are you would be paying rent, which is just like throwing money away.

Given all the above information, history shows that your rate of return when buying a home is higher than most other types of investment.

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