Leverage in SoCal real estate

Dated: August 28 2021

Views: 2

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! 

Blog author image


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 ....

Latest Blog Posts

Winning despite missing information

Suppose you want to buy a townhome that is listed at $460K. A conversation with the listing agent reveals that 15 buyers have already made offers, and bidding has passed the $500K mark, but you don

Read More

All ME, all YOU, or teamwork

If you are considering buying, selling, or selling and then buying a home, choosing how you will relate with real estate professionals is fundamental to your ultimate success. There is a spectrum of

Read More

What are you doing New Year's Eve?

This weekend proves once again that the real estate world never sleeps. Over New Year’s Eve and New Year’s Day I showed two townhomes to clients and prepared offers for both. Each one

Read More

Price per Square Foot

Some buyers I have run into seem to approach their search for a home with a single selection method: they want to meet or beat their target price-per-square-foot. This measurement can provide a

Read More