Owning Your Own Home: Wait, What?(buy&sale )
While you might think that owning your own home is mostly about providing shelter, think again. If properly managed, your own home can be the single best way to invest in real estate in a first investment.
What do I mean by “if properly managed”?
It means you buy a home at fair market value or less. It’s also better to buy the least expensive home in a neighborhood, rather than the most expensive.
You also pay off your mortgage in 30 years or less.
Finally, it means maintaining the property in marketable condition, without over-improving it (spending more on upgrades than you’ll gain in higher market value).
There are two ways your home becomes an investment:
- Amortization of your mortgage. While you’re living in your home and making your mortgage payments faithfully, the loan is gradually amortizing away. At the end of 30 years, you’ll own it mortgage-free. That will give you 100% equity in your home.
- Price appreciation. A 3% annual appreciation rate means that a home will double in value in the 30 years it takes to pay off the mortgage. The $300,000 home you buy today will be worth $600,000 in 30 years.
Let’s say that you buy a home today for $300,000, with a 5% down payment ($15,000). Your equity in the home will go from $15,000 to $600,000 in 30 years.
That’s a serious investment. And while the home is increasing your wealth, it’s also providing shelter for you and your family.
No other investment combines two benefits the way owning a home does. Now that’s how to invest in real estate!