With all the negative news about real estate lately, it’s easy to get distracted. When searching for and buying a house, keep your eye on the prize—the financial benefits of your investment!

HOME VALUE APPRECIATION
Realtor ® magazine recently released information on the growth rate of existing home prices. According to the Standard & Poor’s/Case-Shiller Home Price Index, real estate values in Atlanta increased 1.7% in the past 12 months. We are one of only 5 cities in the country that showed an increase in home values!

WHAT DOES THAT MEAN TO ME?
Say you buy a $250,000 home with a 5% down payment equal to $12,500 and finance the rest. Assume that the market remains soft for the first year or so.

Now let’s assume that in the second year, the market begins to warm up a bit and home values rise by 5%, which is approximately the average annual appreciation rate in the United States since the 1970s, according to the federal government.

Now your house would be worth 5% more than you bought it for, $262,500. Since you financed $237,500, your initial cash investment of $12,500 has already doubled! You’ve got a net $25,000 in equity.

If it continues to appreciate by that historical average of 5%, it would be worth $275,625 at the end of year three, $289,406 at the end of year four, and $303,876 at the end of year five.

During that time – even without a big boom in property values – your $12,500 would have more than quintupled to $66,376 and you would control an appreciating asset worth nearly $304,000!

Taken from ‘Keeping Your Eye on the Ball: The Financial Benefits of Homeownership’ by Ken Harney.
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