Building wealth the real estate way....
Realtors all over Metro-Milwaukee are telling you that NOW is a great time to buy. Believe it or not, it is not because they are starving and need a sale. Historically, real estate is not a get rich quick investment, contrary to all the speculators in the marketplace going into 2005! Even in a market of falling prices, there is money to be made over the long term. Perhaps I can help you understand how wealth is created in today’s market, based on a podcast I recently listened to by Steve Harney, a well known real estate economist.
Perhaps you spent $400,000 for your home at the height of the market. You would really like to move into a larger, more expensive home costing $600,000, but are concerned that you will lose too much in the sale of your current home to justify the move. Check out the illustration below - you will see that over the long term, you will actually GAIN WEALTH by making the move now:
Price will sell today (-15%): 340,000
You lose $60,000 by selling now, right? Ouch! Consider, however, that the larger home you are purchasing has also depreciated in value.
Price in today’s market(-15%) 600,000
You gain $106,000 by buying the larger home in this depressed market - thus you end up with a net gain in wealth of $46,000 RIGHT AWAY. ($106,000 devaluation in purchased home less $60,000 devaluation in home you sold = gain in value of $46,000.)
t helps me to put it another way: think cash. In the old market, the new house would have cost you $706,000 - 400,000 (proceeds of sale of your home) = $306,000 cash to buy the new house. To make the same move today, it will only cost you $600,000 - 340,000 (sale proceeds) = $260,000 cash - you save $46,000 CASH by moving now!!!
There’s more! Look into the future; think long term. If you stay put, your home will not appreciate as fast as the home you want to buy:
Increase 5-7 yrs (+15%) 391,000
If your home appreciates 15% over a 5-7 year period, your wealth will increase by $51,000. However, look what happens to the larger home:
5-7 years from now (+15%) 690,000
Your net worth has increased by $90,000. $90,000 if you move, - $51,000 gain if you stay = $39,000. Therefore, it actually costs you $39,000 in lost wealth to stay put!
If you decide to make the move today, in 5-7 years your overall wealth has increased by the $46,000 that it would have cost you for the same home in a good market, plus, the larger appreciation in value of the new home of $39,000, for an overall wealth building amount of $85,000!!! Now that’s wealth building the real estate way…
Have a great day!
Posted By:
Cathy Butschke
