I write a lot about financial investments like dividend stocks, mutual funds and ETFs but the asset most responsible for the growth in my net worth has been real estate. Buying my first home and living in it for ten years added nearly 400k to my net worth.
Let me explain a bit. I purchased my first home (a 2-bedroom townhouse) in 2004 for a little over 200k. By 2014, it had nearly doubled in value and I sold it for a little over 400k. Sure I paid mortgage interest, property taxes and updated the home, but all that considered I probably made somewhere between 100k-150k on the sale…not a bad return on my original investment.
Looking back on it, 2 big things happened over those 10 years while I was getting started in life and job-hopping. First, the real estate market took off so I caught a nice tailwind that helped boost the value of my property.
The second thing that happened over that time was that I paid down my original mortgage principal. I was on a weekly-accelerated plan, I made lump sum payments whenever I could and I increased my regular weekly payment whenever I got a raise at my job. By the time I sold the property, it was nearly paid off completely.
Owning real estate is probably the oldest and easiest way to build wealth. Nowadays real estate has become a hot button issue as housing prices hit records around the world. Will the housing market crash? Who knows?
The one thing I do know is that there is a cost to living. Life isn’t free and we all need a roof over our head… we need to live somewhere. There are things that we can do to minimize our monthly overhead like choosing to live in modest accommodations, but there’s still a cost whether you rent or buy your home.
Given all the things that people can waste their money on like cars and consumer products, real estate is probably their best option for building some form of wealth. By owning real estate, a person builds equity in asset that (hopefully) appreciates in value while the outstanding debt gets smaller and smaller until it’s paid off one day. Renting is okay for a few years but, long term, I think it’s throwing money away to pay someone else’s mortgage. The key to financial success, I believe, is for a person to buy a home within their means while also saving at least 10%-20% or their income.
What are your thoughts on real estate? Is it a good investment?
*Update August 2015* I just purchased my First Rental Property.
If you liked this article check out my other real estate posts:
Photo credit: Photo by Stuart Miles / FreeDigitalPhotos.net