If you are a long-time user of Marketing Library, PREP, or a former CRS 205 student, you are fully aware of the Homeowner's Analysis form. It shows a purchaser the effects of the tax advantages and investment potential of home ownership. Agents have been using this effective tool for decades to convince buyers to get off the fence.
Recently, while teaching a class, I discovered a new way to present the information. Anyone who works with investments knows the effect of leverage to produce favorable results. I don't know why I never thought about applying the principle of leverage to a home purchase before.
Let's say that a person is considering a 250,000 home using a FHA loan. The down payment will be $8,750. Let's assume that the home appreciates at 3% for the next 7 years, the Future Value of the home would be $308,000. If the buyer obtained at 5% 30 year mortgage, with the normal amortization that takes place, the $8,750 down payment would grow to $96,000 in equity for the homeowner.
That's over ten times the original investment… and it's all because of leverage: using other people's money.
Just compare that to what the $8,750 would be worth if the purchaser had bought a Certificate of Deposit at 4%...it would have a future value of $11,572. At a modest 3% appreciation, the future value of the down payment is worth over eight times more…and that doesn't even take into consideration the fact that the owner got to live in the home and enjoy it with tax benefits during that time.
With the supply of homes giving buyers a choice and interest at incredibly low rates together with values at years past, this is an excellent time to be buying a home. You owe it to the buyer's you're working with to use tools like the Homeowner's Analysis to show them the advantages of making the positive decision to move forward today.
If you don't have a tool like the Homeowner's Analysis, this is one of 48 different spreadsheets in the Marketing Library to help buyers and sellers make better financial decisions. See the features in the new version…Marketing Library 2009.
