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W hy Y ou Should Invest in Real Esta te

Exhibit 13.2 Median Price of Homes Sold in the United States, 1966–1982

$80,000

$70,000
$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$0
1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982

U.S. Median Price of Homes Actually Sold

______________________________________________________

For example, in many so-called Rust Belt cities, rental properties earn
unleveraged income yields of 8 percent to 16 percent a year. Great

cash flows, but most investors expect these high-yield properties to
appreciate slowly (or not at all).
2. If you want to gain the extraordinary wealth-building power of lever-
aged price appreciation, you might choose to buy in San Francisco,
New York City, Boston, or other popular high-priced areas where
buyers expect property prices to appreciate (over the long run) at rates
substantially higher than the national average. Unfortunately, buyers
in high-priced areas now must accept income yields of just 4 percent

to 5 percent, and sometimes less. When financed with 80 percent
loan-to-value mortgages, such properties can produce negative cash

flows of $1,000 a month (or more —depending on the specifi c pur-
chase price and terms of financing). Because of these large negative

cash flows, relatively few beginning property investors can grab hold
of this rung of the property ladder. They do not earn enough from
their jobs to feed these 16-foot alligators. Many investors who can

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