Our grandparents knew it, and our parents knew it. But somehow the true power of appreciation is lost in today’s generations. For today’s example I am going to us a very doable scenario for most. Buying a home for $500,000 with a 5% down payment. Yes there are 100% financing programs, and programs that require less down, but no matter how much you put down, the appreciation will remain the same. I am also using $5,000 in closing costs. That would represent a zero-point loan with standard closing costs and the pre-paid amounts for taxes and insurance are figured in as well. So all together you are coming up with $30,000 in total.

If you are wondering how much income it would take to qualify for this type of transaction, you would be shocked to know it is significantly lower than the median household income for our state. With no debt, an annual income of $68,000 is sufficient to qualify. But what if you have a $400 per month car payment? Then you would need to make $78,000 a year.

For the following graph, I am using a very conservation annual appreciation of just 3.33% per year. We have been averaging almost 4.5% per year, so I believe the 3.33% is very save to use. It may also be low, because on every island there is insufficient inventory which pushes prices up. The good or bad news, depending on how you view it, is that there is no projected relief from the shortage of housing in Hawaii for the foreseeable future. So to stay conservative in model, we will only project out for the next 10 years. One last note: The down payment in my calculations are not considered a cost, because it is being placed into the equity of the home.
Appreciation Results ($500,000)

Until you see the numbers before your eyes, you would never believe it. For a small investment consisting of closing costs and 5% down (a total of $30,000) you would end up in 10 years with a gain of $188,965.

If you are one of our real estate agent subscribers we need to spread the word! If you wish to have a custom presentation made for your clients, just let me know. I’d be happy to generate it for you.

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