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Why Buying a Home is a Good Idea
The Best Investment
As a fairly general rule, homes appreciate about four or 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 easily earn over the same return with a very safe investment in treasury bills
or 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.
Income Tax Savings
Because of income tax deductions, the government is 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 arent 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."
Contact Sue for more information on homes in Jonesboro and the surrounding area.
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