Most people will tell you: “Buying a home is the best investment you’ll ever make.”
Which sounds great, but begs the question: Is it true?
Most of the time, the answer is yes. Owning a home is a crucial step to building wealth and creating financial security. Depending on your particular circumstances, it makes sense to have some perspective and consider the pros and cons of home ownership.
When you think about it, a home is part asset and part shelter. As an asset, it also comes with downsides and risks along with all of the upsides.
- A home is a concentrated asset that ties up funds. In order to have access to your home equity, you need to refinance, take out a home equity line of credit, or sell the property. Real estate is not a liquid asset.
- Upkeep can be expensive. It costs money to take care of a house properly. And, renovations vary wildly on their return on investment. Make sure your optional renovations make a good return on investment.
- Your emotions can get in the way. When making investment decisions, it is critical to be objective. And, when it comes to the place where you may live, raise a family, or retire, rational thinking can become difficult.
And Some Pros:
- You can lock in your housing costs. If you plan to stay put for 3+ years, houses can help you build wealth. You won’t get stuck in the inflation trap of renting, and in most markets homes appreciate beyond inflation.
- Forced savings is a very good thing. With many low down payment options available, you can use a loan to acquire an asset you would otherwise never be able to afford. The more appreciation your asset experiences, the greater your returns. And in the meantime, you are building equity each month that contributes to your net worth.
- There are incredible tax benefits that come with homeownership. Homeowners can deduct both property tax and mortgage interest from their income taxes each year. Plus, if you sell your house and see a gain, those profits are tax free (up to $250,000 for individuals and $500,000 for couples), as long as you’ve lived in the house for two out of the last five years before selling.
If this is your year to buy a home, we would be delighted to help you with any and all of your real estate needs. Please contact us at 303-773-3399 or firstname.lastname@example.org.