Interestingly, even in this market, some realtors still provide incredibly optimistic projections, even on their public website. For a vivid example, click http://www.ginnyollis.com/ and go to “Buyer’s Info”. There you will read the following (I pasted the info below).
Amazing . . .
UTC renter
p.s. BTW Ginny Ollis is a sweet person and Mission Hills is a wonderful place to live.
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Buyer’s Info
“Recent reports suggest that housing prices may increase less than 15% this year, and for some of the population, those already owning homes, this sounds like very bad news. Please NOTE HOWEVER, the rate of appreciation is not your true benefit. For most of us the major share of ownership belongs to a lender, creating for us that wonderful “L” word, “LEVERAGE”.”
So, IF your home is owned 75% by the mortgage company and you only own 25%, you still get to keep all the appreciation. This means that the return on your invested dollar, the equity, is multiplied beyond the mere appreciation. For example. If you own a $700,000 home, and your mortgage is $500,000, you “own” 28.57% of the home. If the home appreciates 10%, or $70,000, your home is worth $770,000 and you still owe $500,000. Your ownership has gone from $200,000 to $270,000 or you have increased your equity by 35%. The formula for calculating your return, simple and separate from expenses and tax benefits and ownership rights, is percentage of appreciation =
Rate of Return Percentage of equity .
Therefore 10% appreciation ÷ 28.57% equity = 35% Return
If you get 20% appreciation, your return would be 70% Return.
It also means if you get only 5% appreciation, your actual return would be 17.50%. Now admittedly there are expenses (some of which can be written off your taxes) and management effort with real estate, which you don’t have with paper securities. However, given the favorable capital gains taxes, the deductions for property taxes and mortgage interest, and the possibility that you can occupy the property for shelter or rent it out, the worst that can happen if the market goes down is not very bad.
Hard to complain.
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Possible, but I doubt it as Ginny regularly updates all other sections of her page. For example, she regularly updates her “GinnyGram”. In fact, a new 3rd quarter 2006 has just been posted. Go to: http://www.ginnyollis.com/
click: Ginny Gram
As they say, it’s not just a river in Egypt . . . (that’s the more generous interpretation).
The ironic thing is that she focuses on the concept of leverage. In a declining market, that’s like whistling past the graveyard. She could have come up with “we have a buyer’s market now”, or “a house is a place to live, not an investment”, or “interest rates are still low”, or any other line that’s popular nowadays. Instead, she picks the worst possible concept to atract buyers.
No margin calls on real estate. If the borrower pays the mortgage each month, the lender can’t force anything. The only exception: option ARM, where the lender can ask that the borrower pay the full amount each month, rather than the minimum.
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