Median prices are splashed all over websites, blogs, texts, and even by some hard copy newspapers. But what do they mean to me. Do I really care what the national median price is or what the median price is in Lake County or even in my own Orange County? What do they mean for the area or tract or style of home where I live?
We start with the declaration that median prices are not a tell all, show all factor. They are the price on the sale of the “middle” home in the area being studied. These can be affected by number of homes sold, number of higher priced homes sold that period in comparison to lower priced homes, weather, and who knows what else. But in most cases they are the only game in town.
Check the following from our beloved state of California: May 2007 was $594,530; February 2009 was $245,230, and December 2016 was $509,060. One other stat that I have seen in many releases is that the value for my county went up 7.2% in 2016. But my area median price is probably still lower than at the peak. So I have held property for 9 years with no increase in value. Disappointing. However, smile things could be worse, and does anyone really know what is going to be happening in the next nine years.
Want to talk about another opportunity that some of us missed? If we bought a rental house at the low 2007 price with a low interest rate and did not lose any money during the nine years, the house would have made us some money. Let’s see $245K to $509K, an increase of $263K which would be over a 108% gain on my investment.
Oh, I forgot one small thing. This is Real Estate. Most investors do not pay all cash. They use the Big L. Leverage that is. OPM, other people’s money.
When we bought the home in 2007, we searched and got a 10% down loan. They are out there. Have courage in your convictions. Therefore, we put $24,500 down. Without going into great mathematical detail we sold the home in 2016 at $509K. There would be some pay-down in the loan, but let’s only consider the increase in price, do not consider selling costs, and assume with the low price and low loan we were able to break even on operation. The increase in price is still $263K, but our investment was only $24,500 so that would mean the investment has increased over 10 times or around 1073%.
Time to get out and do some. Is it a good time to buy now. It is probably better than tomorrow. See you at closing.