Clients looking for a home frequently ask me if buying a home is a good investment. I explain to them that one of the benefits of home ownership is “Leverage”. What that means is this. Because you gain appreciation on the entire value of the home—not just your down payment—your percentage return on your invested cash can be much higher.
Here is an example:
• You invest $400,000 in stocks
• The market returns 10%
• You make $40,000
Now compare that to the purchase of a new home:
• You use the same $400,000 as a 10% down payment
• You buy a $4,000,000 home
• The home grows 3% in value in one year
• That equals $120,000 in gain
Your return is not 3%, but 30% of your cash down payment. Same investment. Very different outcome.
Even if your $400,000 was a 20% downpayment on the same home, your gain after 1 year at just 3% growth is $60,000, still more than your stock investment at 10% gain.
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