Few topics attract as many opinions – wanted or unwanted – as real estate. Everyone seems to “know” where the market is heading, and what constitutes a bargain. If you’re thinking about buying a home, and have told your friends and loved ones as much, you have likely heard their thoughts on the matter. Some may be encouraging; others may be disheartening.
Chances are, you have mixed feelings about purchasing a home, regardless of where the market currently stands. Even if you have endured the process before, it can be daunting. This article will serve as a quick reminder of the compelling reasons to consider buying.
1 – Properties Rise In Value
To be sure, recent stumbles in the market have demonstrated that prices of homes for sale can drop quickly over the short term. Such slumps are part of a regular cycle in real estate. That said, statistics over the last hundred years have shown a steady rise in the value of residential properties. While the growth is slow in comparison to the stock market, it does keep pace with inflation.
2 – You’ll Build Equity Over Time
During the first year of your mortgage loan, the majority of the monthly payments will go toward interest. Very little will be applied to the principal of the loan. This changes slowly over the course of your loan; by the time the last year arrives, very little of your monthly payments will be applied to the interest component. You’ll be building equity in your home as an increasingly faster rate.
Contrast this to paying rent. Each year, your annual lease is renewed with a slightly higher rent payment. Over the course of several years, you might observe your rent increasing by nearly 50 percent. Meanwhile, not a single dollar of your monthly rent payments builds equity for you.
3 – Interest On Your Mortgage Is Deductible
Currently, our federal tax code provides a number of benefits for homeowners. One of these benefits is that interest on your mortgage payments is tax-deductible. Given that interest represents the majority of your payments, the tax savings are significant.
Unfortunately, there’s no way to guarantee this deduction will always to available. The government may decide to remove it from the federal tax code. However, most presidential administrations are keenly aware the housing market is driven in part by favorable tax treatment. Removing it would shake the market. Thus, it is highly unlikely the deduction will disappear in the near future.
4 – Special Tax Treatment For Capital Gains
Another provision in the federal tax code involves the treatment of capital gains from the sale of a home. The code currently allows an exclusion of $250,000. If you’re married, the exclusion rises to $500,000. The main requirement is that you must have lived in the house as your primary property for at least two years.
This is a significant benefit. You could potentially sell your home every two years in a rising market, and shield the majority of your profit from taxes.
5 – You Can Take Advantage Of Equity Loans
Once you have a significant amount of equity in your house, you can take a loan out against it. This may make sense depending on your financial situation. For example, if you would like to add a bedroom, but lack the resources to do so without borrowing, an equity loan might offer an ideal solution. The interest rate tends to be lower than the rates on other sources of financing, and the interest is deductible.
If you’re thinking about buying a home, but are hesitant because you’re uncertain whether there is a good reason to do so, consider the five reasons above. Each makes a compelling case for enjoying the benefits of homeownership.
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