The Value of Leverage

The Value of Leverage

For many families, buying a home isn’t just about having a place to live—it’s one of the best ways to build long-term wealth.

Why Real Estate Builds Wealth

Housing has historically been a strong investment. Looking at data from 20 major U.S. cities from Case-Shiller, home prices are up about 2.1% over the past year and a huge 88% over the last 10 years. The national average is even higher at 91%.

But here’s where things get really powerful: most people don’t pay for a home in cash—they use a down payment and a mortgage. This is called leverage, and it makes the returns on your investment much greater.

How Leverage Works

When you put 20% down on a home, you’re only investing part of the purchase price. But as the home’s value grows, you earn returns on the entire home value, not just your down payment.

Example:

• Home value: $500,000
  

• Down payment (20%): $100,000
  

• If the home’s value rises just 2.1% to $510,500, your $100,000 investment has grown by $10,500.

• That’s a 10.5% return—five times higher than the 2.1% gain in home value.

In many markets, we are seeing the anticipated year over year home price appreciation is 4% this year - almost double the Case-Shiller figures used in this example. 

Over 10 years, with an 88% rise in home prices, that same $20,000 would have turned into $88,000 in gains—a 440% return.

Why Owning Beats Renting

Of course, owning comes with costs—mortgage interest, property taxes, and insurance. But keep in mind:

• Everyone pays to live somewhere—either rent or a mortgage.
  

• Rents usually go up over time, while a mortgage payment can stay fixed.
  

• Mortgage interest may also give you tax benefits.

That’s why, in many cases, owning ends up being the smarter long-term financial move compared to renting.

Real Estate vs. Stocks

You can use leverage with stocks too, but it comes with more risk. If stock values drop enough, investors can be forced to sell (a “margin call”), sometimes losing everything. With a home, values may fluctuate, but your 30-year mortgage protects you—you won’t be forced out by the bank just because values dip.

History shows that home prices have risen in 77 of the past 83 years. That makes real estate one of the most reliable investments out there.

Bottom Line

Real estate combines stability, leverage, and the utility of providing a home. If interest rates continue to move lower, price appreciation could accelerate even further—making now a powerful time to think about how real estate can help you grow wealth.