Living Rent Free
Just like the stock market, appreciation in real estate has its ups and down, but overall the trend is up. We have a limited amount of land and a rapidly increasing population. More and more people are competing for the raw materials needed to build houses, making them more expensive to build. Investing in real estate requires you learn the market, make good common sense decisions, and maintain good credit.
Your ability to pay rent is power. It allows you to buy real estate and all of the appreciation you gain from it happens without your help if you keep the property maintained. In many cases those increases exceed what the owner would be able to save in their lifetime. In their old age, many people could not afford to buy the house they bought 20 or 30 years prior.
There are risks in owning real estate, but the risks
of not owning can be far greater for many people.
With the mortgage in the following examples, we’ll apply a 6% interest rate, a 90% loan, and a 30-year term. Historically speaking, the rent you can get for a dwelling in the first few years after you purchase it is a little less than the loan payments would be. Your mortgage usually starts out slightly higher than your rent would be for the same house. But rents go up and your mortgage payments don’t, so generally speaking for the homeowner, their house payment equals their rent.
In 1997 you could have purchased some houses in Los Angeles as follows: