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
& 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 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."
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