Down the longterm trend is up

George Castleberry increases,4 so does the

Mllionaire Real Estate fovesstor demand for housing (see Austin, TX

figure 11).

This makes sense because, as research shows, in the modern era real estate consistently has increased in value at a rate of about 6.1 percent a year,5 outpacing inflation by an average of 33 percent a year (see figure 12).

Trammell Crow, one of the most successful real estate investors ever, once famously declared, "The way to wealth is debt." What he was bluntly describing is the third area that makes real estate an "able" investment: Real estate is leverageable. The 6.1 percent appreciation rate mentioned earlier may not seem like a lot, but that figure is actual-

4 The U.S. Census Bureau reports that the U.S. population grew at an average rate of about 2.3 million a year (0.98 percent compounded annually) from 1970 to 2000 and is projected to grow at almost the same pace (0.82 percent compounded annually) from 2000 to 2030. At the same time, the percentage of home ownership has increased from approximately 64 percent to 69 percent; therefore, the number of homeowners has increased at a greater rate than has the population.

5 U.S. Department of Housing and Urban Development data show that median home prices appreciated at an annual rate of 6.1 percent from 1972 to 2002. At the same time, the cost of living (inflation as measured by the Consumer Price Index) increased only 4.2 percent per year.

Figure 11

Average Home Prices & Inflation (CPI)

ly a little deceiving. It doesn't take into account the fact that practically no one pays all cash for a home or a real estate investment. In reality, almost everyone finances most, if not all, of the price through a mortgage. As a result, people get the benefit of the appreciation on the full value of the property while having to invest only a relatively small proportion of the purchase price.

For example, a person may have put down only $30,000 on a $150,000 house. If that leveraged property has appreciated 6.1 percent to $159,150, the $9,150 gain should be weighed against the $30,000 invested, not the $150,000 price. A gain of $9,150 on $30,000 translates to a 30.5 percent rate of return on the investment! Because real estate is lever-ageable, Millionaire Real Estate Investors know they can achieve rates of return not commonly seen with other investment vehicles.

The Power of Leverage on Rate of Return

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