According to the Portland Business Journal the median price of homes has more than doubled since 2011. This incredible statistic proves that owning real estate is still one of the best investments one can make, especially if they are also getting the utility of that real estate being their personal home.
What is more exciting than real estate doubling in value is the return on the initial cash investment as most buyers use a mortgage loan to complete their purchase. For example, in 2011, the median price of a home in the city of Portland was $247,000. Today, the median price is $525,000. If you bought a home in 2011 for $247,000 with a 20% down payment ($49,400) and you consider that you have to pay rent to live somewhere, after ten years of “rent” (mortgage payments), you would owe $160,000. If you were to sell for $525,000, less brokerage fee, title insurance, and escrow charges of approximately $28,000 to $30,000, you would then net $495,000 less $160,000 (remaining mortgage balance), or $335,000.
To think that you could invest $50,000 and then end up with an over 6X return on your initial investment is remarkable. Granted, to dramatize this, we have not included your mortgage payments. Why? Because most of us have to pay for a roof over our heads and it would typically go to your landlord.
If you choose to factor in your mortgage payments, then in 2011 you would likely have obtained a 30-year mortgage at 5% and your payments would have been $1,061. After making payments for 10 years, you would have invested an additional $176,720 ($91,092 of which was mortgage interest that you likely would have taken a deduction against your income over the previous ten years to lower your tax bill). In this event, you would take the $335,000 and subtract the $176,720, for a net gain of $158,280.
When you take this approach, the return is still fabulous. You invested $226,120 ($49,400 + $176,720), provided a home for your family, and ultimately made a 68% return on your money over the course of ten years and that does not factor your tax savings due to the interest deduction.
While today’s prices are higher than ever before, there is rarely a time when we look at the real estate market and think it is underpriced. Still, what do we do? We tend to wait, watching for that underpriced moment, while others dive in and build wealth. Home ownership is alive and well, consider diving in.
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