Buyer's Guide
The Best Investment
As a fairly 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 (at times) appreciate much more, and you could
earn over six percent with the safest investment of all,
treasury bonds.
But take a second look…
Presumably, if you bought a $200,000 house, you did
not pay cash for the home. You got a mortgage, too.
Suppose 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.
Of course, you are making mortgage payments and
paying property taxes, along with a couple of other
costs. However, since the interest on your mortgage and
your property taxes are both tax deductible, the
government is essentially subsidizing your home
purchase.
Your rate of return when buying a home is higher than
most any other investment you could make.
If you are moving to a home for the first time, you
are going to be very pleased with all the new space you
have available. You may have to even buy more "stuff."
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.
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 a place to live, you can certainly expect
your rent to increase each year – or even more often. 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?
Forced Savings
Some people are just lousy at saving money, and a house
is an automatic savings account. You accumulate savings
in two ways. Every month, a portion of your payment goes
toward the principal. Admittedly, in the early years of
the mortgage, this is not much. Over time, however, it
accelerates.
Second, your home appreciates. Average appreciation
on a home is approximately five percent, though it will
vary from year to year, and in some years may even
depreciate.. Over time, history has shown that owning a
home is one of the very best financial investments.
Freedom and Individuality
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 thousand of dollars painting, putting in
carpet, tile or window coverings when the main person
who benefits is the landlord and not you.
Since your landlord wants to keep his expenses to a
minimum, he or she will probably not be spending much to
improve the place, either.
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 created, not some faceless
landlord.
More Space
Both indoors and outdoors, you will probably have more
space if you own your own home. Even moving to a
condominium from an apartment, you are likely to find
you have much more room available – your own laundry and
storage area, and bigger rooms. Apartment complexes are
more interested in creating the maximum number of
income-producing units than they are in creating space
for each of the tenants.
If you are moving to a home for the first time, you
are going to be very pleased with all the new space you
have available. You may have to even buy more "stuff."
All articles © 2000
RealEstate ABC. No articles may be reprinted or
displayed without permission.
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