Are homes a good investment? As a fairly general rule, homes appreciate about five percent a year. Some years it will be more, some years less. The year 2004 was an exception though when real estate prices really zoomed and homes appreciated in double digits. Generally homes appreciate more slowly but steadily. The figures again will vary from neighborhood to neighborhood, and region to region.

Let’s look at the figures in a little more depth for a particular case.

Suppose you bought a home for 300,000 dollars. At the end of next year if your home appreciates by 5%, your home would be worth $315,000 and if it appreciates by 4% your home would be worth about $312,000.

When you buy a home you are not going to pay the whole $300,000 at one go. You may have paid 20% cash down as the initial down payment of $60,000. So your return on investment is not on $300,000 but on that $60,000. So now when we calculate the return on investment it is 25 % for 5% increase in property prices and 20% for a 4% appreciation.

But, of course you need to pay interest on your mortgage and property taxes. Suppose you pay 6% on your mortgage of $300,000 - which is $18,000 and $6000 in property taxes, you will have a total outgo of $24,000 in interest and taxes. But remember that your mortgage and property taxes are tax deductibles. So if you pay taxes at 30% you straightaway save $7200 in taxes.
(There are some conditions like you can claim these deductions only if you live most of the time in the house for which you have secured the mortgage and you can’t claim deductions on appraisal fee, title insurance fee, settlement fees etc that you pay when purchasing your home. You need to consult with your tax accountant to clarify these matters. Here we are assuming that you are following all the IRA rules)

Now let’s summarize those figures at the end of year at say 4% appreciation of prices in the homes for a 60,000 down payment you end up $12,000 + $7,200) - ($24,000. with a outgo of $4800. At the end of the mortgage period of 20 or 30 years you own a house, which should have steadily appreciated over that period.

Now supposing you rent a condo and your monthly rental + condo fees expenses are about $1200. For a full year your outgo will be about $14,400. But you still have that $60,000(down payment) in hand to invest in something else. Suppose you are a conservative investor and put it into Govt. Treasury bonds, you will earn about $1800/year @ 3% or $1200 @ 2%. So your total outgo will be $14,400-$1800($1200)= $12,600($13,200).

These numbers may vary from region to region, based on the area of homes, based on your rent, based on interest on mortgage, and value of your home. But you can make a rough calculation and add or deduct numbers applicable to your particular case and you will able to make an informed decision on whether to buy or rent homes.

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Author: Webmaster
http://www.search-real-estate-online.info
Search Real Estate Online
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