It’s the age old question confronting first-time home buyers: should I buy or continue to rent? The answer is simple. When you rent, you pay for someone else’s monthly payments on an investment for which they are sure to accrue returns over the long-term. When you buy, your monthly payments equate to a form of savings with potential future returns when you sell. Real estate is one of the most sound investments out there, and a source of financial success for many entrepreneurs.
That said, the housing market, like every type of market, has its ups and downs. That doesn’t mean buying a home is a bad investment. As a long-term investment, homeownership is still one of the best investments for individual households. Historically, real estate has consistently increased in value, despite shorter periods of depreciation due to local markets and/or national economic conditions. The data shows that homes generally appreciate about 5% per year.
So quit worrying about the details and consult with a real estate agent and your financial advisors who will all agree…it is a good idea to own real estate.
Savings & Investment
Five percent may not seem like a great return on investment, but you have to think about it in the context of the situation. For example, let’s say you put 10% down on a $200,000 house. That’s a $20,000 down payment, or initial investment. At a 5% annual appreciation rate, your $200,000 home would gain $10,000 in value during the first year. Earning $10,000 on an investment of $20,000 is a whopping 50% return.
For further perspective, let’s say instead of spending that $20,000 on a down payment, you invested it in the stock market. With a 5% return, you would gain only $1,000 in profit.
In recent years, the IRS has reduced the number of deductions for homeowners, but there are still plenty of tax deductions that you may qualify for. The government has an interest in helping citizens realize the, “American dream.” Be sure to consult with a tax professional about everything you need to know before making your home purchase.
It’s easy to get carried away with all of the economic reasons for home ownership, but it’s important to remember that not every reason is financial. Have you ever wanted to paint the walls of your apartment? Well when you’re renting, you often can’t. Has anything in your apartment ever needed updating, but the landlord refused to do it? When you own a home, you can make the space yours in almost any way you want. And you benefit when you do home improvements, both financially and psychologically.
So when you’re considering buying a home, consider the broad range of benefits that owning a home can have. And always make sure you have an experienced real estate agent and loan officer to help make sure you’re getting a home that is right for you.