The Investment Aspect
As a rule of thumb, homes appreciate by 4-5% per year. Real estate is hyper-local, so this number will vary by neighborhood, but nationally, 4-5% is the average. That may seem conservative with the wild swings we have observed in the stock market over the last couple years, but the return on a safe investment is 5%, plus you get to live in it. So, putting your money into a home every month is definitely a good investment.
Additionally
Let’s say you bought a home for $200,000 and put 20% or $40,000 down. At the rate listed above, if your new home appreciated by 5% in the first year, that is $10,000 in appreciation. That means with the $40,000 your Return on Investment, or ROI, is over 25%. That’s crazy! Of course there are property taxes and other expenses, but you also would have paid on the principal. Any investor would jump on an ROI like that! Have you ever heard of an investment with a greater return? Plus, you get to live in it.
Uncle Sam Pitches In
As of now, the interest you pay on your mortgage is deductible on your income taxes. So, the government is helping make homeownership more affordable. Let’s say you have paid $8000 toward interest and your salary is $50,000. This effectively reduces your salary to $42,000. In addition to mortgage interest, the amount of property taxes you pay are also deductible. So, homeownership helps greatly reduce your tax burden each year. Plus, you get to live in it.
The Payment is the Payment is the Payment
If you have been renting for many any length of time, you know that the rent almost always goes up each year. With a fixed rate mortgage, your payment will stay the same for 30 years, or whatever the length of your mortgage is. The only exception is your property taxes, which can change based on new special tax jurisdictions or other propositions usually put to a vote.
Many homeowners escrow their taxes, which means they have their lender collect and pay their property taxes on their behalf. This is mandatory unless you put 20% or more down when you buy the home. Due to miscalculations on the lenders behalf, your mortgage payment can fluctuate based on the property tax escrows. But most often, your payment will stay the same for years and years. Compared to going up each year, which do you think makes more sense. Plus, you get to live in it!
Savings that Actually Works
People are notoriously bad at saving money. That is why safeguards like 401k plans and escrow accounts are in place for things as important as retirement savings or property taxes. When you buy a home and have a fixed rate mortgage, the amount you are paying toward principal, and hence saving, increases each year. In addition, your home is appreciating, so you are saving each and every month. Plus, you get to live in it!
You Can Paint
When you are renting, an apartment or a house, the amount of individualization you can apply to your home is very limited. In most agreements, you must get approval from the property owner prior to doing any painting or improvements.
Additionally, it does not make sense to spend your money doing projects on a property that doesn’t belong to you. It is unlikely the landlord will be making many improvements either, since making money is the name of the game, which means keeping expenses low. But when you own your home, you can do whatever you like to it. It is up to you to make it your own. Plus, you get to live in it!
So as you can see, there are many advantages to home ownership, both financial and personal. Plus, you get to live in it!
About The Author: Kimberley Kelly is an experienced La Quinta short sale real estate agent helping home buyers and sellers in the Palm Springs real estate area. If you’re interested in learning more about Kim, please visit her Palm Desert real estate blog.