The Benefits of Home Ownership
We'll get into some of the benefits that you will reap when you own a home, some of which you are probably already aware and some of which may be new.
While this is probably the most obvious, it is still worth briefly mentioning. Mortgage interest and property taxes are tax deductible in the majority of circumstances. This means that owning and financing a home may lower your taxable income, causing you to have lower income tax rates each year. See your tax professional for more details.
Equity Over Time
If you are looking to purchase a home at this time, it is possible that, with all of the undervalued properties on the market, you may find yourself with equity in the property at the time of purchase. Equity is the difference between what you owe on your home, and the value you would get if you were to sell the home.
While you may have no plans for that equity when you move into the property, you may have great uses for it at a future date, such as paying for college for your kids, or purchasing rental property that will give you a stream of income into your retirement years.
Here are some potential uses for this equity:
College: Being able to borrow money from your home rather than having to borrow it through student loans has a couple of benefits. The first, as noted above, are the tax benefits. You would unlikely be able to write off the interest on a traditional student loan, but you could if you were to take the money from the equity in your home.
The second benefit to using the equity in your home is that you may get a lower rate that you could if you went through either government or private funding.
Investment Properties: This is a long term strategy that can really pay off in the end. Historically, very few investments, including the stock market offer the rates of return that real estate does. If you were to take equity from your home as a down payment for an investment property that generates positive cash flow each month, you can potentially repeat this cycle, acquiring multiple properties along the way.
You could even put together a log term strategy so that by the time that you were ready to retire, you would be able to own these properties with little or no mortgage debt attached to any of them. This would allow you to supplement, or even replace other retirement income when that time arrives.
True investments, as opposed to other places that you can spend your money will always offer a stream of income that will last a lifetime, and that you can pass on to future generations. If you are an avid reader, pick up a copy of the book Rich Dad Poor Dad by Robert Kiyosaki, as it will brilliantly explain this concept.
Purchasing a Second Home or Retirement Home: While we wouldn’t advise you do this unless you are close to retirement or in a very solid financial position, owning a second home that you can occasionally rent out and eventually move into when you retire, can be very rewarding.
Using Equity to Start A Business: Many entrepreneurial minded people will appreciate having equity in their home when and if they decide to start a business. A well funded start-up can be far more successful than a business that is boot-strapped from inception.
Home ownership is very fulfilling and the opportunity to buy a home has never been better. We are at a unique period in time where interest rates are at record lows and property values are overwhelmingly depressed. This is the perfect storm (the good kind) for a first time home buyer.
If you have questions about anything that you have read here, give us a call at Poli Mortgage Group and we will be happy answer them for you.
If you're considering buying a home in the near future, we can help you get a pre-approval letter so you can go out and shop with confidence.