 THE
BEST INVESTMENT
 Buying
a home is considered one of the best investments you can make. Here's
why. 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 (at times)
appreciate much more, and you could earn over six percent with the
safest investment of all, treasury bon
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.
INCOME
TAX SAVINGS
Deductions you may be able to claim on your tax returns from income
and property taxes can add up to more savings for you. 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. Because of
income tax deductions, the government is basically subsidizing your
purchase of a home.
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.
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.
FREDDOM
& 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.
All articles © 2000 RealEstate ABC
No articles may be reprinted or displayed without permission.
|
