Why Is Owning Your Own Home a Good Investment?

Most real estate in general will appreciate at about a rate of 5% per year. Of course during the years this rate will vary but most likely real estate is always going to appreciate throughout the years. Appreciation rates will also vary in different states, counties and neighborhoods. Many attributes contribute to the appreciation rate of a home or piece of real estate. Here is an example of how owning a home is a good investment:

If you buy a house, for example let's say for $200,000, and most likely you did not pay cash for the home. Like so many other home owners you generally had to take out a mortgage to pay for your home. Depending on how much you initially put as a down payment this would become your initial investment on the property. Let's say you put 20% down on your $200,000 house. This would mean you had an initial investment of $40,000(this is your down payment). Now if your $200,000 home does appreciate by 5% in the first year, you would then realize a market value gain of $10,000. Since you put $40,000 as your down payment you then realize a 25% gain on your initial investment.

There are other factors that contribute to your home as being an investment. You also need to take into consideration that you are making monthly mortgage payments, there is property taxes, and other costs that go along with home ownership. However the interest on your mortgage and the property taxes that you pay are both tax deductible by the government. The government is basically aided you in home ownership by subsidizing your purchase.

With an average rate of appreciation of about 5% per year on your property, along with the interest on your mortgage payments and property taxes being tax deductible makes owning a home a very good investment. Generally speaking, it is hard to find in other markets that type of return on an investment that you get from purchasing a home. Some might even say owning a home is the best and most secure investment you can make in your lifetime.

Tax Deductable Savings

All interest that you pay on your monthly mortgage payments is in turn deductible from your gross income at the end of the tax year. If you had a home of 200,000 at an interest rate of 7% then you would pay around $11,148.51 (this is considering you put 20% of the price of the house as a down payment) in the first year that you paid on the mortgage. This means that the $11,148.51 is deducted from your gross income and you don't have to pay taxes on that money that you earned.

The property taxes you pay on a house are also deductible from your gross income at the end of the year as well. Property taxes are varied depending on where you live, therefore your tax benefit from property taxes will vary depending on where you live and how much you are obligated to pay.

The government gives you a reason for purchasing a home. Through all of the tax incentives that you will receive while being a home owner makes purchasing a home a good investment.

Rent vs. Mortgage Payments

It is very easy to understand why buying a home is an investment when you compare it versus paying rent. Paying rent is basically throwing your money away each month. Paying a mortgage is building equity, thus earning you money. Most of the time when you pay rent, you can anticipate your rent payments to increase over a certain amount of time. After purchasing a home by means of a fixed rate mortgage you can be assured your monthly payment will be the same for thirty years. Adjustable rate mortgages (ARM) will assure you of your monthly payment staying within a certain range for thirty years. Therefore, as your monthly mortgage payment stays consistent over time, rent payments are generally increasing. When paying a mortgage you are saving money over time because of the increase of rental payments.

Savings Over Time

Purchasing a house can also be looked upon as purchasing a forced savings account. The equity your home earns over time is considered "forced savings". In the beginning when you are making mortgage payments only a small percentage of your payment goes towards the principal of the balance. This percentage increases over time. However the amount you pay down from the balance is building you equity in your home. If you have purchased a home for $200,000 with 20% down and a mortgage rate at 7% then you have paid about $1,828.26 off the principal in the first year. Considering the $40,000 you have put down on the home, the $1,828.26 you paid off of the principal and the 5% appreciation rate that your house has gained ($10,000), you then have a total of around $51,828.26 in equity! Keep in mind, while paying a home mortgage, as time goes by a higher percentage of your monthly payments will go towards the principal amount. Thus, paying down the principal amount on your mortgage, plus the appreciation rate of your home will generate you savings over time.

The Freedom To Do As You Please In More Space

Along with all the financial perks of owning a home, after purchasing a home you are also given the ability to do almost whatever you want to the property. You don't have to ask permission to make improvements such as putting in carpet or tile, painting or landscaping. Some improvements such as adding on extra rooms, remodeling a bathroom or putting in a pool might require permits from your local government. However all of these improvements are dictated by you and fully benefited by you as well. You reap the benefits of your improvements by earning equity. While renting, a landlord will most likely not do many improvements because they will want to keep their costs low. When owning a home you can benefit from creating a desirable living environment that you can enjoy and create as well.

Along with purchasing a home you will probably realize a bigger living space for you and/or your family. If you are moving from and apartment you will enjoy the new space that you have gained. Generally, an apartment is smaller because it is an income producing unit. You will benefit from laundry, storage areas and having a front and backyard when purchasing a home. The new space that you do acquire will also be yours to do with as you please.