This is one of my favorite questions that I receive as a San Diego Realtor. What is, How to Make MONEY in Real Estate? Equity is this magic thing that you can not touch with your hands until you sell. This Equity can be described as the Cash that you walk away from the sale with. The best part of equity is that there are two different types! First, you are paying down your principle balance and second, is the market appreciation. In San Diego, we have one of the hottest markets, where our appreciate rate this year has been over 12%! Let’s break both of these items down.
- When you are making monthly payments on your home, you are paying your principal and interest. The aim is to pay both of these items off and have a fully paid off home. Let’s specifically connect your equity and your principal. Let’s say that your Loan Amount is $500,000. Your Principal balance is $500,000. Every month as you make your mortgage payment, let’s call is $1,000 goes towards principal. After one year, that’s $12,000 of principal balance that you have paid down. So $500,000-$12,000 = $488,000. After 3 years, $500,000- $36,000 = $464,000 . This is the simplest way to explain it. Every month, your mortgage stays the same but amounts towards interest and principle change. Your interest payment starts high , and your principal payment starts lower. Overtime, they slowly switch as you pay less interest each month and more principal each month.
- That is a great start as your principal is paid down, but it gets even better when you include market appreciation. On average, our San Diego Market has grown at 4.9% over the last 40 years. Better yet, we are growing over 12% this year! So let’s say that we are looking at your $500,000 home , in one year, it will (hypothetically) be worth $524,500. At year two, it be will (hypothetically) be worth $550,200.50. Lastly, at year three, it will (hypothetically) be worth $577,160.32. Now, let’s combine the two.
- When we take into the principal balance and the market appreciation from our examples, we see our equity! So with the principal paid down to $464,000 after 3 years, and home appreciation to $577,160.32, your equity is up to $113,160.32. That shows how crazy of an investment a home purchase in San Diego is! That is an average of $37,720.10 a year on a $500,000 home! Numbers are the best way to answer the question of, how to make MONEY in Real Estate!
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Joey Bergandi of VelocityRealty has been helping San Diego Buyers and Sellers successfully for the last 5 years. Joey’s ideology of Real Estate stems from transparency and communication. He believes that all transactions begin and end with direct conversations and honest expectations. If you are looking to start the process today, call Joey at (408)603-6800!