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Building
Wealth
A message from Diversified Capital
The economic slowdown we have experienced has taken a toll on property values in most areas. Looking back it's easy to analyze what went wrong. Our country has been losing its manufacturing base to less costly products from off shore for many years.
Although our economy appeared to be healthy, it was being kept strong by consumer spending, much of it due to increasing home values. Homeowners felt rich on paper and were able to pull cash from their equity which they used to fuel the economy even more.
This, coupled with the hugh push to increase the percentage of home ownership, caused lenders to become too aggressive with their programs. We seemed to have an unofficial campaign of "no renter left behind" as we tried to make everyone a home owner.
Once the sub-prime market and the wall street derivatives market started falling apart, the entire real estate market began a meltdown.
However, even with all this turmoil, if you look at real estate over the long haul, it is still a prudent investment.
Owners of a typical home did not pay the purchase price in cash. They borrowed, and so by owning they received two benefits: shelter and (usually) appreciation. If we say that monthly mortgage payments, property taxes and insurance can be seen as “rent,” then to figure our return on the investment, the down payment, we should always look at how much cash was put into the property and how much value can be extracted.
Additionally, both interest on the loan and property taxes are tax deductible. Depending on your tax bracket you may see a sizable income tax benefit from owning a home.
So, by combining appreciation potential of the home, the tax deductions you gain, and the joy of owning your own home, it is no wonder that the dream of homeownership is still strong in the United States.
Will everyone do well? No. Is it possible to lose money with real estate? Yes. Does past performance guarantee future results? No. The bottom line: Real estate is typically a far better investment than annual price increases suggest,something we can all appreciate.
Diversified Capital Funding
30 Whitney Street
Los Altos, CA 94022
Los Altos HQ 650-551-1187
Carmel 831-622-1187
