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Realestate increases what? Personal wealth? In this market? Yes, owning realestate increases your personal wealth. Managing your personal finances is key to guide you to more wealth, owning a home - purchased at the right price - and paying it off is a sure way to get you there.
Just remember, we are talking about your home. A place you intend to live in for a long time; it is the roof over your head, a place to go to relax and raise the kinds. Something you should not be taking risks on. Our examples are not the folks who speculate on real estate.
You can’t eat your home if money gets tight so you have to make sure you can afford to buy and pay a reasonable price for it. Of course that applies to anything else you are considering purchasing. That said, we are not talking about increasing your wealth over night and a get rich quick scheme. It takes time to pay off a mortgage, you build wealth over time. Let’s try an example, consider an average house:
| Price |
$250,000 |
| Down Payment (20%) |
$50,000 |
| Interest |
6% |
| Term |
30 Years |
| Principal + Interest |
$1199.10 per month |
| Inflation Rate |
3% |
If you lived in this house for 30 years and paid off the mortgage and decided to sell it and move on to retirement you will have about $550,000 (if you include the sales agent fee of 6% it will be about $520,000). Not bad for putting $50,000 down for 30 years and having a roof over your head. This figure assumes that your home appreciates in value at the inflation rate of 3% of course, that rate could be higher or lower but this figure is a reasonable rate to consider.
Rule of Thumb
Consider property values increase at the inflation rate, it is a conservative number and any additional increase in value is just icing on the cake!
The chart below shows the potential take home on the sale of the property during the 30 year life of the loan in this example.
Something to point out is the higher bar chart. Note that if we did not have to pay that pesky interest on the loan we will have about $790,000 (if you include the sales agent fee of 6% it will be about $750,000).
Like any debt the interest rate is important and how quickly you pay it off. That difference is the money you pay to the bank. Don’t work for the bank!
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