A SIMPLIFIED 20% DOWN EXAMPLE
I had an interesting conversation with a client recently that reminded me of one of the reasons I’ve always liked real estate as an investment.
He’s considering purchasing an investment property with family and mentioned that if he contributed approximately 30% of the money, he figured he should receive approximately 30% of the future profits.
I asked him one question:
Who is getting the loan?
That led to an interesting discussion about leverage.
Consider a simplified example.
You purchase a $1,000,000 property with 20% down.
Your investment: $200,000
Loan: $800,000
Now imagine that over time the property appreciates by 20% and becomes worth $1,200,000.
The property gained $200,000 in value.
The bank provided 80% of the original purchase price...but the bank doesn't receive 80% of the appreciation.
You do.
So, in this simplified example, a 20% increase in the value of the property created a $200,000 increase in equity...equal to the entire amount of your original $200,000 investment.
That's one of the unique characteristics of leveraged real estate ownership.
Of course, leverage isn't without risk, and property values can decline in any given year. But historically, California real estate has performed very well. According to California Association of REALTORS® data, the median price of an existing single-family home has had an average annual increase of approximately 7.2% since 1968.
Coastal Southern California also has something relatively rare: a Mediterranean climate, a climate type found on only about 2% of the world's land area. That combination of mild weather, limited land and continued desirability is one of the reasons I've continued to favor California real estate as a long-term investment.
It's also why I enjoy these conversations with clients. Sometimes looking at the numbers from a slightly different angle completely changes how you think about an investment.
If you're ever looking at an investment property and want to run through the numbers together, I'm always happy to help.
View the California Association of REALTORS® historical appreciation data here: 2026 Annual Historical Data Appreciation History