themarycoxteam.wordpress.com - Appreciation

Invest in Equity Build-up

Equity build-up could be one of the biggest advantages to buying a home. There are two distinct dynamics that take place to make this happen: each house payment applies an amount to reduce the mortgage owed and appreciation causes the value of the home to go up.

It is easy to make a projection based on the type of mortgage you get and your estimation of appreciation over the time you expect to own the home. Even conservative estimates can produce impressive results.

Let's look at an example of a home with a $270,000 mortgage at 4.5% for 30 years and a total payment of $2,047.55 payment including principal, interest, taxes and insurance. The average monthly principal reduction for the first year is $362.98. If you assume a 3% appreciation on the…

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Get Leverage Working for You

Leverage is an investment term that describes the use of borrowed funds to control an asset; sometimes referred to as using other people's money. Borrowed funds can affect the investment in your home positively.

For instance, if you had a $100,000 rental property, collected the rents and paid the expenses and had $10,000 left, you would earn a 10% return (divide the $10,000 by the $100,000.) With no loan on the property, there is no leverage.

If you decided to get an 80% mortgage at 8%, you would owe an additional $6,400 in expenses leaving you only $3,600 net. However, your return would grow to 18% because your investment is now $20,000 in cash (divide the $3,600 by $20,000.)

Leverage, the use of borrowed funds, causes the return to increase…

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Building Equity

Owning a home is the first step to building equity. Tenants build equity but not for themselves; they build it for the owners.

Equity is the difference in the value of the home and what is owed on the home. There are two dynamics that cause this to grow: appreciation and principal reduction.

As the home increases in value, it is said to appreciate. Various authorities will annualize an appreciation rate based on average sales prices from one year to the next. Since appreciation is based on supply and demand as well as economic conditions, it will not be the same year after year.

If you looked at a ten to twelve-year period, some would be higher than others and there may even be some individual years that it is flat or even declined. For the…

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More Than Just an Address

For a short time after the housing crisis a decade ago, some homeowners thought the value of home is a place to live rather than an investment. A home certainly has an appeal as a place to call your own, raise your family, share with your friends and feel safe and secure. It can be more than an address; it can also be one of the largest investments homeowners have.

Most mortgages apply a portion of the payment toward the principal amount owed in order to pay off the loan by the end of the term. This acts like a forced savings for the homeowner because as the loan is reduced, the equity grows which increases their net worth.

The other contributor to equity is appreciation. Most homeowners don’t realize the increase in value until they sell the…

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Convincing Advantages with Standard Deduction

The new tax law doubles the standard deduction and it is estimated that over 90% of taxpayers will elect to use it. However, even without considering tax benefits, homeownership has convincing advantages.

Besides the personal and social reasons for owning a home, one of the most compelling is that it is cheaper. Principal reduction and appreciation are powerful dynamics that reduce the effective cost of housing.

Amortized loans apply a specific amount of each payment to the principal amount owed to retire the loan over the term. Some people consider it a forced savings account; when the payment is made, the unpaid balance is reduced.

The price of homes going up over time is appreciation. While there are lots of variables and it is not guaranteed,…

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Indecision is Not a Decision

There could be some legitimate reasons for not buying a home but indecision is not one of them. Indecision is rooted in not having enough information to move forward to own a home or continue renting.

If you keep renting, at the end of the year, you have had a place to live and a pile of receipts that helped the landlord pay for his house. Deciding to buy a home will give you a place to live that is yours and all the things that come with that.

When you consider principal reduction, appreciation and tax savings, your monthly cost of housing could be much less than the rent you’re paying. The principal reduction included in each payment is like a forced savings account that increases as your mortgage balance decreases. Your equity in the property…

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Investing on Your Side of the Fence

The grass tends to look greener on the other side of the fence. Maybe that’s why some people invest in things they don’t understand. It has been said that the grass is just as hard to mow on the other side of the fence so stay with what your most familiar.

Single-family homes used for rental property give a person a chance to invest in something they understand: a home. They also have distinct advantages over other types of investments.

An investor can borrow up to 80% of the value at fixed interest rates 30 years. The financing creates leverage so that the investor can benefit from the increase in value of the home not just the down payment.

It is reasonable to expect that the home will appreciate while providing tax advantages and practical…

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Rental Real Estate is Preferred Choice

Real estate is the overwhelming preferred choice by Americans as identified in a recent survey. With the Dow Jones industrial average reaching record highs, it might be expected that the stock market would be the favored choice but that wasn’t the outcome.

Analysis of the report suggests that the popularity for houses could be that they are tangible assets that you can see where your money is actually invested compared to stocks and bonds which tend to be unclear where the money is invested.

There are several distinct advantages of homes as investments over other popular alternatives.

1. High loan-to-value mortgages available
2. At fixed interest rates
3. For long periods of time
4. On appreciating assets
5. With definite tax advantages
6. And…

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You may never stop paying for some improvements

You’ve saved the money and are ready to pay cash to build a new pool for your home.  However, that’s just the beginning of your soon to be increased expenses which will include maintenance, higher utilities and higher taxes.

Homeowners obviously benefit by a larger equity when their home increases in value due to appreciation.   A not-so-obvious effect that will also more than likely take place is that their property taxes will increase.  In most cases, a property’s assessed value is generally tied to market value to calculate the property taxes based on the tax rate for that year.

Similarly, a homeowner can affect the value of their home by making capital improvements.  Some small items may never be recognized by the taxing authority but items that…

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Postponing a Purchase

You might be surprised how many people contact real estate offices because they want to buy a home but they don’t have the down payment or the credit to qualify. Occasionally, an agent will be working with someone who does have the down payment and credit but for whatever reason, decides to postpone the decision to purchase now for some point in the future.

It’s not uncommon that once they’re out of the market, the money starts burning a hole in their pocket and they end up buying a boat or a motorcycle or some other thing that cannot positively affect their lives and security the way a home does.

If the money had been put away somewhere safe like a certificate of deposit, it wouldn’t earn a lot but it would be there when they decided the time was…

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