The biggest reason to own real estate (that you didn’t already know)

I was reading a memoir of Sam Zell, a legendary real estate investor, and a line jumped out at me.  He said:
“The real money in real estate came from borrowing long term fixed rate debt in an inflationary scenario that ultimately depreciated the value of the loan and increased the position of the borrower.”

Maybe not the most eloquent of sentences, but this is what it meant:  when we buy real estate, whether our primary home or an investment, we have the option to put long-term fixed-rate debt on it i.e. the tried and true 30-yr mortgage.

That means, for 30 years, we get to make the exact same mortgage payment.  But here’s the (first) thing:  in 30 years, today’s dollar is worth only 40 cents.  So we get to own the home today, but the dollars we pay it back with are worth less with every year that goes by.

On the other hand, the historical long term appreciation rate for real estate is ~ 4%.  So over 30 years, a $500k house becomes a $1.6mm house.  So over that time, our house value more than triples, while the money we’re paying for it is halved.

Apologies if I’ve confused you.  As I write this, I realize how hard it is to explain something like this through email.  But hey, you know I’m always up for a call if you want to chat :)