Home ownership
offers an investment opportunity, tax benefits, and the
freedom to make decisions about the home you
live in. Paying rent is just an expense with very
few benefits. When
you purchase a home you use a small down payment to
purchase a much larger investment opportunity. Thus, if
you purchase a $125,000 home with only 5% down, you will
use a $6,250 down payment to purchase an asset
worth 20 times that amount! When you sell, you are
entitled to all the profit from your property's
appreciation and equity.
Equity
The
chances are very good that you'll sell your
home before the loan is fully paid. When you do,
you'll only need to pay off the unpaid principal
balance. The difference between the sales price and the
unpaid principle
is your equity.
Equity is gained by paying down your mortgage loan,
through appreciation, and by making improvements to
the
property.
 Appreciation
on your investment
A huge benefit of home ownership is the
equity gained through appreciation, the increase of a
property's value over time. Suppose you live in the
house for five years, and during that time property
values have risen an average of four percent a year. Your
$125,000 home might then be worth over $155,000. You've
put only five percent down on the loan, yet you still
enjoy 100% of your home's appreciated value of $30,000.
Tax
Benefits
The IRS allows homeowners
to deduct mortgage interest and property taxes
from their income tax. If your
earned income for a tax year is $40,000
and your mortgage interest and taxes
amounted to $10,000, you would only pay
taxes on $30,000. This generally reduces
the actual monthly payment by a
significant 24% to 27%. Renters have no such
deductions. Your landlord gets the deductions and uses
your rent to pay his mortgage.
When you sell your home, you keep all of the profits. You’ll
pay no income taxes or capital gains taxes on the
profits from your home. No other investment carries
such privileges. Married homeowners can enjoy
tax-free profits of up to $500,000 from the sale of a
primary residence that they have occupied for two
of the last five years. If an owner is single or
married, filing separately, he or she can enjoy
tax-free profits up to $250,000.
Credit
Advantage
Home
ownership is a major indicator of financial
responsibility and stability, which gives you the chance
to build a strong credit history.
Stable monthly housing cost
As
a renter you’re subject to rising rental fees. A homeowner with a conventional fixed-rate loan is
secure in the knowledge that these expenses will not
increase. If you've been a renter, you know
that any increase in your landlords operating expenses
will be passed on to you as an unexpected rental
increase.
Control of your
environment
Renting comes with plenty of restrictions. Limited
parking, no pets, noises you can't control, few
decorating choices, and little to say about needed
improvements or adjustments to your living environment. Your
home is your own space…to control as you see fit.
When
Renting is a Better Idea
When
you purchase a home you will have closing costs
amounting to somewhere between $800 and $2500. When
you sell the home, the State and the county will charge
taxes, you will be required to provide title insurance,
and the real estate company will charge service fees. We have
calculated that if you expect to live in the
Lansing area for less than fourteen months, you might as
well rent. If you purchase a home, you will
generally break even on your investment in fourteen
months. Anything beyond fourteen months will
most likely represent a profit on your investment.
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