Sometimes, there are costs associated with not taking a particular
action. If a person left their money in a certificate of deposit earning
2% when they could have made an investment that earned 8%, the difference is
the opportunity costs associated to not taking action.
If a couple has a down payment and good credit, locking in a low interest
rate mortgage for 30 years could easily provide their lowest cost of
housing. If that couple waits three years to purchase a home, the price
would probably be higher as would the mortgage rate.
However, assuming the price and interest rate remained constant, look at
what the opportunity costs might be compared to doing nothing.
If their money was invested in a certificate of deposit at 2.00%, in two
years their $8,750 would have grown to $9,104. They would have earned
$354 and had to pay ordinary income tax on the interest.
If their money was invested in the stock market that had increased 7%, in
two years they would have a profit of $1,268 which would be subject to
long-term capital gains tax.
On the other hand, if the same investment was used to buy a home that
increased in value at 3% annually, the equity would be $31,938 or an increase
of $23,188. Tax would not be triggered until the home is sold and may not be
due then based on their homeowner’s principal residence exclusion.
The home goes up in value due to appreciation and the unpaid balance goes
down because of amortization.
The dramatic difference in growth in the
equity of the home is effected by leverage: the use of borrowed funds controlling
A home is a place of your own where you can feel safe and secure, to enjoy
with your family and friends and in many instances, a very good
investment. It is difficult to measure the opportunity costs of
intangibles but not necessarily money.
a Residential Finance Consultant, I have the training and experience to
provide solutions to make homes more marketable and help structure favorable
transactions. Please forward this article to your friends or family who
could benefit from it.
We understand that for many people, buying or selling a home is probably the largest investment decision that they will make in their lifetime. Halo Group Realty LLC thus became active in selling Real Estate in 2008 and was setup to make this process a simple and painless transaction. Your dedicated agent will guide you every step of the way to make purchasing or selling your home enjoyable and exciting… as it should be!
Today, Halo Group Realty LLC is at the cutting edge of technology in offering assistance to those in need of real estate services, and we have revolutionized the method of delivering education to consumers. Halo is established as the place for consumers to get the knowledge and assistance they deserve in the process of facilitating the Real Estate transaction, positioning you in the best possible situation to get the best price when you either to buy or sell. With leadership, innovation and forward thinking, Halo Group Realty, LLC is poised to make a huge impression in the real estate market while providing clients the keys to home ownership.
Our goal is to help make your dream a reality and take away all of the stress that goes along with purchasing or selling your home. Whether you are purchasing new construction, an existing home, or just an open space for future enjoyment, representation by a Halo agent is a valuable tool in making your dream become a reality.