The Real Estate Investment Benefit

In the first half of this decade, most areas in the Mid-Atlantic experienced a substantial increase in home prices. So far in the second half of the decade, most areas are experiencing a decrease in home prices due to the oversupply of houses on the market. Let's say someone purchases a house in 2000 for $300,000, and by 2005 it appreciates to a market value of $500,000. Today, after the recent decrease in the market, that house might sell for $400,000, and the seller would see $100,000 net appreciation. If this seller only remembers the $500,000 at the peak of the market, the seller may think they lost $100,000 instead of gaining $100,000 from the $300,000 originally paid. In fact, homeowners who have purchased several houses over the years should look at the cumulative equity gains for all of the purchased houses. For example, if you bought your first house years ago for $150,000 and sold it for $250,000 to buy a $400,000 house that appreciated and sold for $600,000 to buy an $800,000 house in 2005, you would see a total gross equity gain of $100,000 for the first house and $200,000 for the second house for a total of $300,000 net appreciation. For an investment in the commodity of residential real estate, $300,000 net appreciation is a significant gain. In today's market, if you sold that last house purchased for $800,000 for a price of $680,000 (15% less or a "loss" of $120,000), your total real estate equity gain would still be $180,000. As a commodity, real estate prices go up and down, but historically over time houses have proven to be an excellent investment as well as contributing to a satisfying lifestyle. Although the primary purpose of owning a home is the lifestyle it brings, the secondary benefit is the investment potential. Sellers should look at the investment benefit over a longer period of time to see the gains that eventually come from real estate.