Home Ownership - A Good Investment In Your Future!
As a general rule, homes appreciate about five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region.
Five percent may not seem like that much at first. Stocks, may at times, appreciate much more and you could currently earn 4.87 % with 30 year treasury bonds, the safest investment of all.
Over the last 10 years, the cost of renting housing in the U.S. has increased an average of 3% per year. That means that an apartment or home renting for $1,000 per month will cost more than $1,300 per month in 10 years. If you rent the same home for 10 years, the total amount you would pay for rent will equal $137,567!
None of that $137,567 is returned to you, either through savings or as an investment. Homeownership, on the other hand, has tax advantages that renting does not, and those advantages can help you save money! Unlike your monthly rent, part of your monthly mortgage payment “comes back to you” in tax savings.
Return On Investment
If you bought a $250,000 house, obtained a mortgage, and put as much as 20% down—that would be an investment of $50,000. At an appreciation rate of 3% annually, a $250,000 home would increase in value $7,500 during the first year. That means that you earned $7,500 with an investment of $50,000—an annual “return on investment” of 15 %!
Plus Income Tax Savings &Tax Advantages
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 may be deducted from your gross income to reduce your taxable income.
For example, assume you purchase a home that costs $250,000. Your down payment is $50,000 (plus closing costs incurred to actually process the transaction). You finance the balance with a 30 year fixed rate mortgage at 7 % interest, making your initial loan balance $200,000. During the first year you would pay $13,935 in interest. If your first payment is January 1st, your taxable income would be $6,135 less due to the IRS interest rate deduction!
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.
Tax Advantage & Home Ownership
Annual Taxable Income $50,000
Interest Deduction -13,935
Property Tax Deduction - 2,500
Taxable Income $33,565
Tax Liability $10,069
Annual Tax Savings $3,401
Return on Investment $7,500
Principal Payment $2,031
Ownership Advantage $12,932
Freedom & Individualism
When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. Nor does it make sense to spend thousands of dollars painting, putting in carpet, tile or window coverings when the main person who benefits is the landlord, not you.
When you own a home, however, you can do whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created.
Your rate of return when buying a home is higher
than most any other investment you could make!
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