Imagine you have first-time home buyers who are paying about $1800 a month in rent and they want to keep their mortgage payment the same. Thus, they can buy a $300k home with 5% down for that payment roughly. Let’s assume they own their home for 10 years. How much wealth will they create for themselves?
Homes have appreciated 6.3% a year in Denver since 1971, thus in 10 years their home may be worth $552k! And their loan balance assuming they never refinanced their home would be just $228k. This means they have equity of $324k all by investing just $15k today. That’s a return on investment of 2,160%!!!
How about if prices only go up 3% a year? Their home would still be worth $403k and they would have equity of $175k. That’s a return on investment of 1,167%. At the same time they are locking in their cost for those 10 years, which they can never do by renting.