Real estate is an investment
Investing in real estate is not just for the rich. All of us need a place to live and call home so when any one of us purchases real estate you are making a real investment. Real estate, whether it is a mansion or a studio condo is your piece of the pie. A pie that has been for many years an American dream. And whether you realize it or not buying a piece of real estate is making a real investment in your financial future.
So as someone who has been a NYSE stockbroker and a residential mortgage broker for more years than I want to admit here are the facts based on the numbers. Numbers do not lie.
Let us consider the real estate purchase made by our old friend Thomas Foolery. He purchased a single family home in the High Country back in the late 1980’s. The home was new, on a small lot in a developing neighborhood. The purchase price way back then was a whopping $135,000.00. His interest rate was in the nine percent range and was a thirty year fixed rate mortgage.
In addition to the house payment for Principal and Interest Tom had real estate taxes, homeowners insurance and mortgage insurance on his monthly bill. The monthly total payment set him back almost $1,150.00 a month.
Tom has now decided that it is time to sell the little starter home and to invest in a new home that has all new amenities. Tom has located a real estate agent who has done all the research to determine that his home is now worth $300,000.00. So the home will be placed on the market for that price and hopefully it will sell in the not too distant future.
As to his initial out of pocket investment of $10,000.00 Tom can walk away from the deal with almost $200,000.00 in his pocket. This is after he pays for the real estate agent and the real estate title expenses. A return on his initial investment of twenty times the original investment.
We also need to take into consideration the Federal Tax benefits that Tom Foolery has reaped. If over the fifteen years the home was in his name, at a conservative mortgage interest rate of seven percent, he was able to write off $8,750.00 a year each year, times fifteen years. Tom was able to write off over $131,000.00 over that period of time. That is just $4,000.00 less than the purchase price of the home back in the eighties.
So Tom has written of almost the entire purchase price of the home. He has seen his original out of pocket investment of $10,000.00 grow to $200,000.00. And most important he lived in a neighborhood in the High Country that has served him well for fifteen plus years.
So to say that a home is just a home is shortchanging the power of smart real estate investing. This goes for your primary residence, second home or rental property. Remember that a small out of pocket investment in real estate may not be a gold mine overnight but look down the road and there just may be a pot of money at the end of a rainbow.
For answers to your mortgage related questions call Bob Kieber at (970) 262-1199 or e-mail him at firstname.lastname@example.org. Bob is a local mortgage lender and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country.
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