Profile picture for user961303

Home Appreciation

 Hi,

I have a novice question. If my home appreciates by about 4% annually and I am paying 4.125 APR, what am I really saving by buying a house? Arent the two contradicting themselves?

Thanks!
  • September 01 - Moorpark
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (6)

Try a real estate calculator it will give you some clue.

 http://www.calcxml.com/do/inv04/

Sam Shueh
Keller Wms Realty
[deleted by Zillow moderator. Please see our Good Neighbor Policy for posting guidelines]
  • October 19
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

The best person for you to ask is your tax accountant.  He can explain the tax advantages to you with your personal financial situation.
  • October 19
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

In addition to all the math that others have presented, remember you have to live somewhere.  The money you pay will either go for rent or mortgage.  With the mortgage, a portion goes towards the principle which leads to equity over time.
  • September 01
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

They're not related, Moorpark. The interest rate is what you're paying on the money - if you borrow $100,000, you're paying $4125 (or so) per year. If you bought it for $110,000 and it goes up 4%, then it's worth $114,400, a gain of $4400, so the appreciation is basically paying off your interest.
  • September 01
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for Steve Spiro 1
The answer is called "Leverage". Here is a simplified example of how it works,

If you buy a house for $100,000. and put 3% down, your investment is $3,000. Now if the home appreciates 4% in one year that is $4,000. profit. That is 125% annual return on your investment. You invested $3,000. and the profit was $4,000. in one year. Your equity is now $7,000.

Assuming that you were paying rent before buying, you can now pay the interest instead of rent. Also the interest payments on your residence are tax deductible which should reduce your annual tax liability. When you sell your residence you take your profit tax free with some limitations.  If you are buying an investment instead of a residence you can get a tenant and rent it out for rent income to offset your interest payments. In that case you get depreciation tax write off.  As a real estate broker I can't give you tax advice, contact a CPA to confirm your tax benefits from home ownership vs renting or as an investment property.

Appreciation is not straight line. There tends to be a higher rate of appreciation in the last part of each real estate cycle and lower rate in the first part of each real estate cycle. The cycle is more pronounced on the east and west coast.  In your area which is also my area, it is not uncommon to receive double digit appreciation towards the end of a real estate cycle. You may do much better than only 4% depending on when you buy and how long you keep the property. Many people make a large amount of profit after only keeping the property a short time.  

Home ownership is an important cornerstone of any family's financial plan and to building your retirement nest egg (equity from appreciation and principal pay-down). I would recommend finding a good buyer's real estate agent to represent you and help you buy a home. They will guide you through the process so you don't miss out on the current real estate cycle.   

 
  • September 01
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for Outer Banks N C
No, for one the loan is not on 100% of the house and when it goes up 4% there is then an even larger margin that is not on the loan. Sort of like compounding interest. Also there are tax implications like deductions allowed to offset the tax paid.
  • September 01
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.