Is Buying A Home a Smart Investment?

A Reality check on different Denver markets

There are lots of great reasons why people buy homes. Building equity instead of paying rent to someone else. Having control of your living environment. Putting down roots in a community. And access to great schools for your kids. But in terms of pure investment, how does home purchasing stack up, really? Will your down payment dollars earn more tied up in a home or in the stock market? And how might the answer vary depending on when you buy and sell?

Those questions led me to look at appreciation in a different way. I decided to compare returns on a hypothetical 20% down payment of average Central Denver* residents who bought and sold at different times during the past seven years.

Client #1: Bought and sold in a bad market. (2008 to 2011)

Purchase Price: $366,449
20% Down: $ 73,290
Sale Price: $371,276
Gain: $ 4,827

Gain – Annual: 2.2%
Gain – Total: 6.6%

Takeaway: Even in an awful market, the average Central Denver buyer still earned a modest return. The only loss would be the cost of selling. Not too bad when you consider Colorado’s historic number of foreclosures.

Client #2: Bought in a bad market, sold in a good market (2008 to 2015)

Purchase Price: $366,449
20% Down: $ 73,290
Sale Price: $525,671

Gain – Annual: 31%
Gain – Total: 217%

Takeaway: This scenario spans the entire time period, good and bad years, and still nets a return of 31% per year. This seems to show that, overall, homes increase at a much faster pace than they decline. I feel this is especially true in areas of high demand.

Client #3: Bought in a good market, sold in an even better market (2012 to 2015)

Purchase Price: $400,694
20% Down: $ 80,139
Sale Price: $525,671
Gain – Annual: 52%
Gain – Total: 156%

Takeaway: Buying in 2012 and selling now seems like a no-brainer. The annual growth of down payment money was over 50% —a fantastic investment in anyone’s mind.

Despite a fluctuating real estate market, a Central Denver home has proven to be a solid investment. During the worst years, a home can produce a modest gain along with a place to live. And during average to better years, it’s an investment that the typical stock market return just can’t match.

 

*All detached homes in Central Denver – Stapleton to Berkeley to Wellshire. See map for clarity: https://www.denverrealtyexperts.com/denvermap.php

 

Outsource Your Nerd

 

Greg Eckler

The Denver Expert
Broker/Owner of Denver Realty Experts LLC
greg@DenverRealtyExperts.com
DenverRealtyExperts.com
TheDenverExpert.com
Direct: 303-830-1772

 

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