When it comes to appreciation, the old saying is true: location, location, location. But did you know that real estate, on an average appreciates approximately 6 percent per year? This means that real estate appreciates depending on where it is located. Great locations, yield great returns. Poor locations, yield poor returns. So, if the average is 6 percent, then there are areas that have lower appreciation rates, than areas that have higher ones. Let's talk about that for a second.
If you are purchasing a property that cash-flows, appreciation is just icing on the cake. Do a little bit of homework, and you will find which areas yield higher appreciation levels. For the United States, these areas are: Phoenix, Seattle, Boise, New York City, and Washington C.D. For Belize: this area is Ambergris Caye.
For the sake of discussion, lets discuss how appreciation can really benefit you. Assume for a second you are purchasing a piece of property worth $200,000.00 and you put 20 percent down (or $40,000.00) it then rents for $1,000.00 per month. Where do you think that investment will be in thirty years from now?
Here is what is so exciting about investment real estate: Over time, your property is appreciating while the resident or tenant is paying down your loan. On top of that, the rental income grows on an annual basis!
This is how the purchase of real estate can be a powerful part of your retirement. After thirty years, (average life of a mortgage), the property (at a 6% appreciation rate), is now worth $1,083,678.00. Not only is the property now paid off, it is worth $883,678.00, more than what you paid for it. Yet you only purchased it for $40,000. of your own money. Every month you receive a rental check, this check is then paying down your mortgage.
By using the bank's money; your money realized a much higher return than if you had invested it in stocks or bonds. That is called leverage, and leverage is the ultimate power offered by purchasing real estate. Appreciation grown on the "loaned" amount.
So the bank loaned amount of $160,000.00 - appreciated on an average of 6 percent per year (over 30 years), has now turned into $918,959.00! You then get to keep this added value, not the bank. All the bank receives, is the interest on the original loan amount of $160,000.00. Not to mention, depending on where you file your taxes, you may even get to write off the bank interest come tax time.