Owning a home can bring financial rewards as well as a personal satisfaction that comes with knowing that you have a piece of the American dream. The financial benefits of homeownership range from the tax breaks that come from writing off the interest to the possible appreciation in the equity of the home. To understand the full extent of possible tax benefits I strongly suggested that you contact your local IRS or speak with an accountant about your particular situation. Briefly, some of the financial benefits can include:
- Appreciation - Real estate values generally rise over a period of years.
- Tax advantages - Homeowners may deduct mortgage interest and property taxes as an expense against income, while residential investors may write off cost recovery or depreciation.
- As a tangible asset, real estate is seen by lenders as low risk, durable and marketable, thus they are more willing to loan a high percentage of value. Owners benefit by having control over a high-value asset with a low initial investment or down payment.
- Real estate is marketable—it can be sold at a somewhat predicable price to a dependable group of available buyers, provided enough time is allowed to expose the property to those buyers.
- Real estate provides its owner with valuable control and management of its value.
The personal benefits are less tangible as they vary by individual, but in many cases they are an equal or more compelling reason to buy. The following is a list of common motivations that inspire people to buy a own homes.
- Sense of security, roots and belonging to a community
- Control over design, color, and decoration.
- Willingness to invest in upgrades that will bring pleasure and add to the value of the property over time
- Control over the piece of property, not answering to a landlord.
Usually the financial benefits and, in some cases the personal benefits, accrue only if you plan to stay in your home for a while. There are many factors that influence the decision on how long a person intends to stay in a home. If you are staying only a year or two, it is probably advisable to rent unless you are planning to rent the property when you move. However, if the property is under-valued or the real estate market is appreciating so rapidly that the increase in equity will exceed the cost of selling the property it can make sense to buy with the intention of a quick turn around. To assess the rent vs. buy option, click Buy or Rent?.
If you decide to buy the property and lease it to tenants make sure that the rent you can charge will cover the mortgage payment unless you have decided it is worth taking a loss. Remember, being a landlord is not easy and you must be certain that you have the time and patience to carry out your responsibilities as a landlord. And finally, be sure to assess what the impact of holding onto the property will be on your financial statement. For instance, it is possible that by holding onto the first property to rent you will not qualify to take a mortgage on a second property.
The decision to buy has as much to do with your personal needs as it does with finances. Do the math to understand the impact on your budget. Take time to understand your own motivations before you rush into a decision. Homeownership has its definite rewards. Pursue them with wisdom!
