Last week in response to my newsletter on interest rates, an old work colleague and proud long-time renter reached out to me to share his epiphany. He said, “I just realized that even though I rent, I am paying a mortgage. It’s just not mine.”
No matter how you slice it you are paying a mortgage, either your landlord’s or your own. You can either contribute to someone else’s net worth or to yours.
The benefits of homeownership are many and while the current geo-political and economic forecast feel grim, it's important to realize that the real estate market goes through cycles but over the long term remains a very sound investment. Over beers at a local brewery we talked about the many advantages of homeownership.
Whether you are a first time buyer, a move up or downsizing buyer, or even if you want to invest and become a landlord yourself, read on to learn more about the benefits of owning a home:
1. Appreciation – If you bought during the bidding war frenzy you may now feel like you overpaid; still, if your goal now is as it was then, is to remain in your home for 5 or more years, you are more than likely to realize a gain. Real estate is not day trading. For those on the fence about purchasing a home or worried about a potential recession, keep in mind the factors contributing to the housing bubble are not in play now. If you are optimistic about your long-term employment and residing here, you have a fabulous opportunity with historically low interest rates and more inventory.
2. Building Equity/Net worth – Sure, you’ll have a mortgage to pay but that payment is applied toward reducing the principal balance on your investment vs. the money that you’ll never see again once your landlord cashes your rent check. People who want to own a home, especially in pricier areas such is our region, find it difficult to save for a down payment while also paying rent. With the shift in the market more buyers are able to avoid bidding wars, negotiate on price, or put less than 20% down. Consider acting now while rates are low and the market leans more towards favoring buyers.
3. Tax Advantages – Though every situation is unique, and you should consult your tax advisor, according to the Tax Policy Center homeowners may deduct mortgage interest and property tax payments, as well as certain other expenses from their federal taxable income. When you rent, you cannot take these deductions – but your landlord can! Additionally, homeowners may exclude, up to a limit, the capital gain they realize from the eventual sale of their home.
4. Stability – So far as you purchase within your means and are confident about your long-term employability, you won’t have to move unless and until you want to. This is in contrast to a rental where you may choose - or sometimes be forced - to find a new place at the end of the lease term. Worse, when rents increase you might not be able to afford it. Homeownership provides a level of stability no rental can.
If you’re on the fence and want to talk further about what makes sense for you, don’t hesitate to reach out - I’m here to help you make an informed decision with clarity and confidence.