Real Estate Information Archive

Blog

Displaying blog entries 1-4 of 4

44 Times More Than a Renter

by The Mike Parker Team

 

The Federal Reserve Board's Triennial Survey of Consumer Finances recently revealed the net worth of a homeowner was $231,400 compared to $5,200 for a renter.  The net worth of homeowners increased 15% from 2013 to 2016 while renters' decreased by 5%.

Appreciation and principal reduction are the two dynamics that affect a homeowner's equity.  Each payment is applied to the interest for the previous month and the principal reduction to retire the mortgage.

A $300,000 home purchased with a $294,566 FHA mortgage at 5% for 30 years has an average monthly principal reduction $362 in the first year. Two percent appreciation would benefit the buyer by $500 a month.  In this example, the equity grows by $860 a month for the homeowner.  A tenant would have to invest $660 a month over and above the rent they're paying.

Based on the assumptions listed above, the $10,500 down payment would become approximately $85,000 of equity in seven years.Leverage and forced savings contribute to the difference in addition to the appreciation and principal reduction.

The rent paid by tenants help the landlord recoup their investment in the home and a return on their investment.  Some people say, regardless if a person rents or buys, they pay for the house they occupy.  The choice is whether to buy it for themselves or their landlord.

Check out some of the benefits using your own numbers with this fill-in-the blank Rent vs. Own.

Your Best Investment

by The Mike Parker Team

According to a Federal Reserve report on Consumer Finances, homeowners' net worth is 36 times greater than that of renters. Building on that study, the National Association of REALTORS® believes that by the end of 2015, the factor will grow to 41 times greater.

 

There can be several factors that contribute to this disparity but an important one is the forced savings that is achieved due to an amortized mortgage. A portion of the payment goes to the reduction of the principal balance of the mortgage which increases equity in the home.

Appreciation is also a major contributor to homeowners’ equity. Homes, in most areas, have consistently increased in value over the long term and during the past four years have experienced solid growth. Many economists expect home prices to increase in the next five years.

Let’s look at a scenario where a qualified buyer considers three different options to see what their investment would be in five years: purchase a certificate of deposit, invest in the stock market or buy a home. The following assumptions are made: a $250,000 home with an $8,750 down payment with a 4.5% mortgage for 30 years and 3% annual appreciation; CD rate at 2% and a 5% return in the stock market.

The $8,750 would grow to $9,661 in the certificate of deposit, to $11,167 in the stock market and to $69,900 in equity with a home purchase. That is over a six times growth in the same period of time due to the amortization of the loan and the appreciation.

Check out Your Best Investment to compare possible differences in your price range. 

Save Interest, Build Equity & Shorten the Term

by The Mike Parker Team

 

 

If you invest in a savings account, you’ll make less than 1% and would have to pay income tax on the earnings. On the other hand, contribute something extra to your house payment and you’ll earn at the mortgage interest rate which is certain to be more than you are earning in the bank.

Making additional principal contributions on your mortgage will save interest, build equity and shorten the term. An extra $100 a month in the example shown will save thousands in interest and shorten the term of the mortgage as well.

 

Reducing your cost of housing is another way to improve the investment in your home. Becoming debt free is a worthy goal that is achieved with discipline and good decisions. Suggestions like this are part of my commitment to help people be better homeowners when they buy, sell and all the years in between.

Check out what would happen if you were to make additional payments on your mortgage.

Find a Better Return

by The Mike Parker Team

Find a Better Return

 

A certificate of deposit will generate a cash flow based on the interest rate that it pays which is the only way it generates a return for the investor.

An investment in a stock that doesn’t pay dividends, would need to be worth more than you paid for it to earn a profit.  On the other hand, a stock that paid dividends could make the investor a profit even if it sold for the same price that he paid for it.

Investors can profit four different ways with an investment in rental real estate.

1. Cash flows that result from having a surplus after collecting the rent and paying the expenses.

2. Equity build-up results from a portion of each monthly payment reducing the unpaid balance.

3. Tax benefits can result from the depreciation allowed on the property and the preferential long-term capital gains tax rate.

4. Appreciation benefits the investor when the value of the property increases.

The most conservative investors in real estate make decisions to purchase a rental property based on its ability to generate a cash flow and reduce the mortgage through normal amortization.  If the property can offer an acceptable rate of return compared to other available investments, the tax benefits and possible appreciation become an added bonus.

With increased rents and low mortgage rates for investors, rental property can offer significantly higher returns than many of the available alternatives.  Contact me for more information- Mike@MikeParker.com; you may be amazed about what is available in the market. 

Displaying blog entries 1-4 of 4

Syndication

Categories

Archives

Share This Page

Contact Information

Photo of Mike Parker - CRS Real Estate
Mike Parker - CRS
HUFF Realty
60 Cavalier Blvd.
Florence KY 41042
859-647-0700