Your Best Return on Investment is Owning a Home in Sarasota
About The Best Investment You Can Make
Posted July 16, 2007
Articles have been written lately about the risk of buying a home since the price may go up or down. These articles claim investing in the stock market while
renting a home instead of buying your own piece of Sarasota real estate gives you a better "return on your investment." They point out that stock market investments over the long haul
appreciate in value by 8 - 10% per year. They suggest that this is a better investment option than home ownership since homes across all U.S. real estate markets, including Sarasota
Florida real estate, home prices increase over the long haul by closer to 5% per year.
This comparison, however, is badly flawed. It is true that as a general rule, homes in the Sarasota real estate market appreciate in value
at about five percent a year, sometimes more, sometimes less and appreciation rates can vary from one neighborhood or community to the next.
At first glance, then the 5% annual gain on real estate seems to be less than what is achievable in the stock market.
In fact, you can earn up to 6% per year with the safest investment of all, U.S. Government bonds. "So why think of buying a home as an investment?" you ask.
Let's use an example. Normally, when you buy a $250,000 home in Sarasota or elsewhere, you don't pay cash
for it. You get a mortgage. Let's assume your down payment is the maximum most buyers are asked to put down, about 20%.
That would be an investment of $50,000 of your own money. The rest of your Sarasota ral estate purchase price is
"the bank's money"; your mortgage balance. That's the point. You bought a $250,000 asset by
committing only $50,000 of your money. In most case, your down payment can be closer to 10% or even less, but let's use the 20%
down payment as a worst-case scenario. By comparison to buy stock worth $250,000, you have to put up the full $250,000
unless you're a real speculator and you buy "on margin". But frankly, that's not investing; that's gambling.
OK. So at an annual real estate appreciation rate of 5%, your $250,000 Sarasota home will increase in
value by $12,500 annually. That means you earned $12,500 on your real estate investment of $50,000. Your
annual "return on investment"(or ROI) is a whopping 25%. (The $12,500 increase in value of your Sarasota
real estate investment divided by your investment of $50,000.) Try finding a better investment.
And, as a bonus, you and your family got to live in that $250,000 home in beautiful Sarasota Florida for the year. Sure beats
looking at a $250,000 stock certificate that, in that same "average year", appreciated by even 10% netting you
a gain of $25,000. Sounds great until you realize that your rate of return on that $250,000 you had tied up in that stock was only 10%. Not even close to the 25%
you got from your real estate invesment.
Even better, if you were bought that same Sarasota home with the more likely 10% down which comes with a good credit rating,
your return on investment doubles to 50% (a return of $12,500 divided by your down payment investment of only $25,000).
And, we should point out also that you got to buy your Sarasota home when you had just $25,000 available to invest. You didn't have to wait until you amassed $250,000
before you "got in the game.".
It is true that during the year you made mortgage payments and paid property taxes and other maintenance costs
on your home. But remember you can deduct the interest expense and property taxes on your Sarasota home
against your Federal income taxes. The U.S. Government subsidizes home purchasers, not renters.
Well, how about that notion that home prices can go down as well as up ? Here's the facts. Since recod keeping began in 1968, the national median existing home price has risen every year, even during recessions and periods of declining sales except once and that was last year, 2005.
Real estate, including Sarasota real estate, has been an outstanding investment option. Home values have increased by 88% on a national average over the past 10 years.
Here's the bottom line. The return on investment on buying a home in the Sarasota Florida real estate market
is higher than almost any other investment you could make and certainly better than investing in the stock market or shoveling out cash every month
for a collection of rent receipts.
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