While the housing market has certainly kept us on our toes over the past few years, I believe it is important to remind ourselves that owning a home does have its benefits. The return on your investment, income tax savings and stable housing costs can certainly provide you with financial gain. Our buyers also often comment on the freedom and individualism to create improvements within their new homes.
The Best Investment
Generally, homes appreciate about five percent a year. Some years will be more, some less. Figures vary from neighborhood to neighborhood, and region to region. Five percent may not seem like much at first, but let’s dig a little deeper.
Suppose you bought a $200,000 house and took out a mortgage. If you put as much as twenty percent down – that would be an investment of $40,000. At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual “return on investment” would be a whopping twenty-five percent.
Income Tax Savings
Because of income tax deductions, the government is basically subsidizing your purchase of a home. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income. For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less – due to the IRS interest rate deduction. Don’t forget, property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Stable Monthly Housing Costs
When you rent, you can certainly expect your rent to increase each year, or even more. If you get a fixed rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates aren’t as volatile now as they were in the late seventies and early eighties. Imagine how much rent might be ten, fifteen, or even thirty years from now? Which makes more sense?
Freedom & Individualism
When you rent, you are normally limited on what you can do in terms of improvements. You usually have to get permission to make improvements to a rental property. If you complete improvements, you are spending your own money to paint, put in carpet or tile and the person who benefits from all of these improvements, is your landlord. When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have designed.