Home ownership remains an important investment for most people, thanks in large part to the use of OPM (“Other People’s Money”) to gain “leverage.” Here’s how leverage works.
- Assume that a family bought a home five years ago for $80,000. They put up 20% of the purchase price ($16,000) and borrowed the 80% ($64,000) balance. Now, they manage to sell the house for $120,000. Their relatively small cash investment has reaped the benefit of the increase in value of the entire property. The $16,000 cash investment has resulted in a profit of $40,000.
- Compare this with an investment in common stocks. Federal regulations require that an investor put up at least 50% in cash. Therefore, the leverage is not as high as for the home buyer. If the investor put up $40,000 to buy $80,000 in securities and sold the stocks five years later for $120,000, the return would have been less substantial.
- Taxes, selling costs and other factors would change these figures in the “real” world, but the principle of leverage would remain the same. If you want to increase the return on your home investment as much as possible, let OPM go to work for you.
If you want to increase the value of your house hunting time and energy, let us go to work for you. We can help steer you through the complexities of contracting, financing and closing.
Visit www.cbbaker.com for more information.