Leverage in SoCal real estate

Dated: August 28 2021

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Home ownership in Southern California is an even better deal than people often think, because it’s easy to overlook the fact that buying a home is a leveraged investment. That is, most of the time the buyer of a $500,000 home doesn’t actually pay $500,000 for it. You might think that if your $500,000 home appreciates to $575,000 over the course of two years, you’ve realized a 15% return. Now, 15% is nothing to sneeze at—if you put $500,000 into a CD with a 1% APR (higher than you can typically find right now) you would net just over $510,000, or 2%. But your return is not actually 15%, because you never actually invested $500,000.

The actual expense of owning a $500,000 home for two years, including down payment, monthly FHA mortgage payments, property tax, and insurance is somewhere in the neighborhood of $75,000. Using that measure, appreciation of $75,000 is not a 15% return, but 100%! Imagine buying a home and learning after several years that the money you put into the property is being reimbursed! 

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DAVID DUNLAP

As a residential real estate executive with an extensive background in corporate marketing, I am able to apply unusually strong skills in marketing communications, e-marketing, strategic planning and ....

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