Real Estate is Meant to Be a Long Game… Don’t Forget That!

Filed under: Financial Planning

This is a topic that I’ve talked about in the past, but it came up again this week and I wanted to share the perspective. Let’s step back to 2005 – it looked like real estate was amazing and everything was great. Then you fast forward to 2008 and the market changed.

Example of Long-Term Homeownership Benefits

Here is a scenario to consider: If you bought a house in 2005 for $500,000 and you put $100,000 down, then your estimated payment would be about $2,530 per month. Fast forward to 2009 when that $500,000 house is only worth about $250,000 or $300,000. It seems like an absolute disaster. But if you were smart enough to get a 30-year mortgage, then you still have options for the future.

Fast forward to today: 15 years later, which means that you are halfway through paying off your mortgage. You still have a fixed payment that includes taxes and insurance of about $2,530. Now, rents are much higher and the house is worth about $600,000. Plus, you’ve now amortized away about $130,000 worth of your mortgage.

So, you now have about a $270,000 mortgage on a house worth about $600,000. In this hypothetic situation, you bought the house in one of the worst years in history to buy real estate. But you are still coming out ahead by focusing on the long game.

What so many people did wrong at the time was that they bought with awful mortgages. As payments started adjusting and things got out of control, it made a big mess and people couldn’t keep up. If they would have done it the right way and had the long-term mentality – despite the fact that they bought at one of the worst times, you would still have over 50% equity in the house and a payment that is well below the current rent prices. You are 15 years away from having a house that is paid off!

Maintain Control of Your Finances

Focusing on the long game gives you control over your financial future. The goal is to build the equity and be done with mortgage payments when you reach retirement. The truth is that time will heal even the worst real estate investment. The mortgage will eventually pay off.

Despite the fact that we went through such a real estate disaster, we are still seeing that there are upside benefits for every investment when you are in it for the long game. I share this reminder and invite you to reach out at any time if you are interested in learning more about available mortgage options.

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