What, you may ask “** do Toyotas have to do with houses**”. Actually they have nothing in common, but the relationship between them is a graphic way of demonstrating the impact of

**value appreciation**and

**price increases due to inflation**.

This analogy is one that I first heard from my friend David Campbell of Hassle Free Cash Flow Investing. I liked David’s analogy so much that I have adopted it. Prior to becoming a real estate investor, David was a teacher, and like many good teachers, is better at explaining complex concepts than us long-time Real Estate Junkies.

So lets begin the analogy with a description of the current market. In my home town of Anchorage, Alaska, you can buy a modest but decent house for about $250,000. Since the cost of a new Toyota is about $25,000, we can say that “** a house is worth 10 Toyotas**”. Assuming a 90% mortgage loan to purchase the house means that

**the down payment is one Toyota.**

Now, lets fast forward 10 to 15 years and assume that the same house now sells for $500,000. If in the same time period, the price of Toyotas has increased to $40,000, the house is now worth 12.5 Toyotas. **That is an example of value appreciation.**

However, if the price of Toyotas has risen to $50,000, the house is still worth only 10 Toyotas. **That is an example of price increases due to inflation.**

But, here is where things get interesting, and **is one of the reasons that I believe Now is the Opportunity of a Lifetime to Buy Real Estate**.

**Remember that you can finance 90% of the purchase price of the house with a 30 year**** fixed interest, low interest rate mortgage.** That means you can live in the house, while waiting for the price to double, at a cost less than rent, or you can rent it for enough to let the tenants pay the mortgage for you. **Now lets look at what happened to your one Toyota investment (down payment) under both scenarios.**

**Value Appreciation:** If you sell the house for $500,000 and you payoff the $225,000 mortgage (*$250,000 – $25,000 down payment*) you will have $275,000. (*For sake of simplicity I have assumed that mortgage amortization over 10 to 15 years offsets sales cost*). With your $275,000 you can now almost buy 7 Toyotas (*$275,000/$40,000 = 6.875*) **This means that your initial investment of one Toyota down has grown by 587%!**

**Price Increases Due to Inflation:** Even if the price of your house is still worth only 10 Toyotas, with your $275,000 you can now buy 5.5 Toyotas at $50,000 each. **So, even if there is no real value appreciation, your initial investment of one Toyota down, has still grown by 450%!**

**I HOPE THAT THIS ANALOGY WILL HELP CONVINCE MORE FOLKS, THAT NOW IS THE TIME TO BUY REAL ESTATE!**