If you think that the continuing rise in real estate values is a recent phenomenon, think again. Since 1850, the fair market value of real estate, land and improvements has been increasing at a compounded rate of about five percent. To illustrate, if Abe Lincoln’s cousin bought some property in 1850 for $1,000, that same property would be worth one million dollars today.
In current times, except for the dip from 1988-92 and 2008-2009, real estate has appreciated in sixty-five of the last 70 or so years. Appreciation is even more dramatic when you realize it is tied to leverage in real estate. That means when you buy property, you usually use other people’s money to do so. If you put 20% down ($20,000) on a $100,000 home and it appreciates 5%, the increase in one year is $5,000. This actually represents an increase of 25% on the cash investment. As returns are compounded over the years of ownership, the significant financial rewards of home ownership are apparent.