Weighing the Benefits
Of Investment Property

Question: I purchased my home seven years ago for $173,500 and it is now valued at $300,000. I refinanced, so my current mortgage is for roughly $163,000. I am considering selling my house and using the equity to buy a $450,000 home, with hopes that the property value will double in the next ten years. Would it make more sense to keep my house and buy a summer home/rental on Massachusetts's Martha's Vineyard?

-- Ronald, city not provided

Ronald: It's impossible to say if your current home will appreciate as fast as a rental property on Martha's Vineyard. Talk with a real-estate agent in your area to determine what prices have done in the past and what the local economic outlook is for the future. Then have the same conversation with an agent on Martha's Vineyard.

You also seem concerned about whether you'll make more money on a house that is valued at $300,000 than one worth about $450,000. Keep in mind that appreciation expressed as a percentage is the same for both properties. So if the value of both homes increases by 10% you'll end up with a larger profit on the more expensive home ($45,000 vs. $30,000), but you'll have paid more to get it.

Your best move is to buy the property that best combines a good location with an affordable price.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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