Why Buying a Home
is a Good Idea
Mark and Karen have rented an East Lansing apartment for more than twenty years. Busy with their family and careers, they never got around to seriously looking for home. When they did talk about moving, they could never agree on where to live. Mark wanted to be close to his job on the Michigan State campus, while Karen wanted a few acres in the country.
Their financial planner asked why they've been renting, when during the past twenty years they could have purchased a home and probably paid off the mortgage. Instead, twenty years later, all Mark and Karen have to show for $240,000 in rent payments (twenty years x $1,000 average per month x 12 months per year) are rent receipts. Like many busy couples, they didn't notice how much time, and money, was slipping away. Twenty years of apartment rent would have been a nice retirement bonus had they taken the time to look for a home.
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.
Leveraging your money
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. Investors refer to this as leveraging.
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
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.
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.
Stable monthly housing cost
Lansing, East Lansing, Okemos, Haslett, Williamston, DeWitt, Bath, Perry, Holt, Mason, Leslie, Dansville
Stockbridge, Webberville, Grand Ledge, Charlotte, Olivet, Potterville, Eaton Rapids, St. Johns, Laingsburg, Owosso, Portland