The Mortgaged Home as a Leveraged Investment

Apart from the lifestyle, why should renters invest in homes?  Why should others move up to gain space or down to simplify life?

Middle-income homeowners have seen their properties appreciate by 68% since 2012, according to a new report from the National Association of REALTORS® released during the 2023 REALTOR® Broker Summit.  For example, in the San Jose metro area, low-income earners with homes have accumulated nearly $630,000 over the last 10 years while middle-income earners gained $643,000. Santa Cruz had the second highest gains of wealth in CA, averaging $527,790 over 10 years.  Silicon Valley economic growth and needlessly stiff construction regulations on supply are likely to keep housing prices rising.

For homeowners or landlords alike, leveraged investment may grow with compound interest while interest costs decline with amortization.  If the $800,000 house goes up three percent, that’s $24,000 gained on an investment of $160,000 which earned roughly fifteen per cent.   Of course, cash flow is problematic with today’s high rates and the benefits are long term.  Homeowners frequently can claim mortgage interest tax deductions and the tax benefits are greater if this house is a rental.