<<What is the rule of thumb average increase in property values that realtors traditionally use? For example, investment pros say that the major stock averages will increase around 10 percent per year over the long haul (give or take 2 percent).
What is the mean? Over the long haul does Real Estate appreciate by 2 or 5 or 10 or 20 percent per year?>>
This is highly dependent on area, but on average real estate appreciates at about 4-6%, give or take 2%, over the long term. The big advantage, and why so many can make $$$$millions in real estate, is leverage. For example, say you buy a 100K house with 10%, or $10K down. 10 years later the house value would be just under $165K (100K @ 5% compounded), for a $65K gain. But you can figure the gains based upon the cash you put into it, or the downpayment. A $65K gain on a $10K downpayment in 10 years equates to an annualized return of over 28%.
The costs of maintaining the property (mortgage, taxes, maintenance, etc.) can be discounted if they are in line with what you would have to pay in rent. (Often the costs to own a home are more than rent for the first few years, but as rents increase and most of the home costs, especially the mortgage, remain constant, the cost to own a home are less than renting in the long term). There are also tax advantages for owners, but not renters, which make owning more affordable.
Of course leverage works both ways - if property values go down you will lose more on a percentage basis than on an unleveraged investment that goes down by a similar amount.
<<Or are we in a "new paradigm"? >>
IMO, no.
Hope this helps.
Steve |
