Financial and Intangible Benefits of Homeownership
INDUSTRY INSIGHT
REAL ESTATE
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It ’ s considered a truism that owning a home is a better financial option than renting . After all , as logic goes , why should you pay your landlord ’ s mortgage when you can pay your own ? The value of home ownership is twofold , including both financial benefits and intangible differences that encourage better financial , educational , and professional habits .
According to the Federal Reserve ’ s 2020 Survey of Consumer Finances , a homeowner ’ s net worth is more than 40 times greater than that of a renter . Setting aside the value of the home itself , you may be wondering how home ownership creates such an impact on wealth building .
FINANCIAL BENEFITS OF HOME OWNERSHIP
Forced savings strategy : Your initial investment , in the form of a down payment , along with consistent monthly mortgage payments , offers a relatively painless method of forced savings . While providing a home for yourself and your family , you are building equity in your home every month . Even without taking into consideration any potential appreciation , you ’ ll save tens or even hundreds of thousands of dollars that can be held and passed on to your heirs , accessed through a home equity line of credit or loan , or recovered through a home sale .
Home value appreciation : The long-term pattern for home prices is upward , with differing rates of appreciation in different years and in different parts of the country . Increasing home values tend to offer a steady and , for the most part , reliable return on investment . Additionally I recommend consulting with an experienced local real estate agent regarding the impact that smart updates and improvements can create with even more appreciation , allowing you to maximize your home ’ s value and market appeal .
Fixed interest rates : Compare home buying with a fixed-rate mortgage to renting over a 30-year period . With the likely potential for annual rent increases , renters will experience much higher home costs during the same period , while the buyer ’ s largest expense remains essentially fixed despite inflation and changes in the home ’ s total value . That means that today ’ s mortgage payment may feel like an outright bargain decades from now . Add to these fixed rates the current historically low interest rates and you have a powerful financial incentive to begin your home-purchase process sooner rather than later .
Tax advantages : Mortgage interest paid along with property taxes and some specific improvements , like those associated with energy upgrades or medical requirements , may provide significant tax deductions . You may also save even more on your taxes if you ’ re working from home in a dedicated office space .
Building intergenerational wealth : While home ownership is associated with a personal increase in net worth , it also provides significant financial resources to your heirs . Since inherited homes are currently taxed at their stepped-up fair market value ( FMV ), your heirs should not have to pay capital gains tax on the property ’ s appreciation . That means that you both will be able to take advantage of the tax-sheltering benefits associated with owning a home . Please note that tax laws are revised regularly and these benefits may change for all parties in the future .
INTANGIBLE BENEFITS OF HOMEOWNERSHIP
Once you get beyond the dollars-and-cents benefits of owning a home , you ’ ll find that there are also less obvious intangible factors at play , allowing home ownership to contribute to increased net worth and financial security . These factors can help create additional good habits and long-term perspectives that pay dividends in a variety of ways .
Increased stability : When you ’ re renting , you are subject to a variety of factors that may discourage you from staying in one place . Rent increases , inadequate property management and even unpleasant neighbors may make it easier for you to look for a new place than to stay put . Home ownership , on the other hand , encourages stability , helping you put down roots and providing a sense of permanency and security for your family .
Investment mindset : In many ways , home ownership teaches you the value of money . As you see your home value and equity increase over time , you internalize the value of investing , which can impact your willingness to make good financial decisions in other ways . In addition , you learn to understand the factors that increase your property ’ s value , ensuring that you take care of it with an eye toward its long-term value .
Increased focus on the future : In fact , home ownership can help create a future-focused mentality that will benefit you and your family . Understanding long-term return on investment , homeowner ’ s insurance , maintenance and value-added improvements help you make other decisions with an eye on their long-term impact . Taking the long view is a winning strategy for a variety of investment and financial-planning initiatives , and home ownership can help you flex that muscle .
If this article has piqued your interest in weighing the benefits of home ownership versus renting , or if you would like to know what the market value of your current home is to determine if a move would be beneficial at this time , please contact me for a free buyer ’ s or seller ’ s consultation at your earliest convenience .
Source : Good to Be Home Issue 02
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