The housing market, like
every type of market, unavoidably 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.
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.
Tax
Benefits
So now you’re saying that
a home may have a higher return, but that’s before you consider all of the
costs of home ownership, such as taxes, etc. Well, think of it this way: your
property taxes as well as the interest on your mortgage are both tax
deductible. You can deduct those costs from your income, thus reducing your
overall taxable income. In other words, the government is subsidizing your
home.
Other
Benefits
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 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. Homes generally have more space, for storage, living, etc.
than other living arrangements. Not to mention that you have space outdoors for
barbecuing, pets, and kids. Owning your home carries with it a sense of pride,
accomplishment, and even an elevated social status.
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,
both financially and psychologically.