REAL ESTATE INVESTMENT IN THE EAST BAY: HAVE YOU MISSED THE BOAT? A lot of Buyer and Investor Clients of mine have asked me lately if it’s too late to buy a house …or invest in real estate in the East Bay.
See what homes are for sale now in Berkeley
See what homes are for sale now in Oakland
In a word, NO!
It’s true, houses in the East Bay (Berkeley, Oakland, Alameda) have gone up over 16.5% this past 12 months, and over 50% the last 3 years. That’s off the scale!
Back to reality. What about real estate returns of a more normal 3 to 5% per year. Is it a good investment at that point?
Well, consider this. Take the stock market, and the S&P 500 for instance. The S&P is up 2.2% in the last 12 months, compared to 16.8% for East Bay real estate. But let’s assume for argument sake, both the S&P and East Bay go up by 3% next year. Which is the better investment?
The average price of a house in Berkeley, Oakland, Alameda right now is $756,446. So let’s say you put 20% down, or about $150,000. Next year that investment would be worth $22,693 more. If you put that same $150,000 in an S&P 500 fund, next year that investment would be worth $4,500 more. That’s the advantage of “leverage,” which is possible in real estate thanks to mortgages.
ON EAST BAY REAL ESTATE VS. S&P 500
S&P House
Start: $150,000 $150,000 down payment (20%)
12 mo return $4,500 $22,693
% 3% 15% (based on 80% mortgage)
This assumes 3% annual appreciation. It does not include mortgage costs (assume rental or live in), capital gains or sales costs for either. _____________________________________________________________________________
Given the an average return of 3% for the S&P 500 and 15% for the same investment in real estate, you don’t have to be Donald Trump to know which makes more sense. Of course, you do have to consider Buying and Selling costs of real estate, which is why real estate is a long-term investment…not a 1-year fling.
But enough of the hypotheticals. If you’d like to explore your buying a real estate investment, it’s not too late. Interest rates are still low. And real estate in our area will keep appreciating with the economy. Because they’re not making any more of it.
If you’d like to go over East Bay investment possibilities, just give Barbara Reynolds a call: 510-847-2409.
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