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Real Estate
Buyer Tips
Buying
a home can be one of your most significant investments in life. Not only
are you choosing your dwelling place, and the place in which you will
bring up your family, you are most likely investing a large portion of
your assets into this venture. The more prepared you are at the outset,
the less overwhelming and chaotic the buying process will be. The goal
of this page is to provide you with detailed information to assist you
in making an intelligent and informed decision. Remember, if you have
any questions about the process, I’m only a phone call or email away!
The Best
Investment
As a fairly general rule, homes
appreciate about five percent a year. Some years will be more, some
less. The figure will vary from neighborhood to neighborhood, and region
to region.
Five percent
may not seem like that much at first. Stocks (at times) appreciate much
more, and you could earn over six percent with the safest investment of
all, treasury bonds.
Presumably, if
you bought a $200,000 house, you did not pay cash for the home. You got
a mortgage, too. Suppose you put as much as twenty percent down – that
would be an investment of $40,000.
At an
appreciation rate of 5% annually, a $200,000 home would increase in
value $10,000 during the first year. That means you earned $10,000 with
an investment of $40,000. Your annual "return on investment"
would be a whopping twenty-five percent.
Of course, you
are making mortgage payments and paying property taxes, along with a
couple of other costs. However, since the interest on your mortgage and
your property taxes are both tax deductible, the government is essentially
subsidizing your home purchase.
Your rate of
return when buying a home is higher than most any other investment you
could make.
If you are moving to a home for
the first time, you are going to be very pleased with all the new space
you have available. You may have to even buy more "stuff."
Income
Tax Deductions
Because of income tax
deductions, the government is basically subsidizing your purchase of a
home. All of the interest and property taxes you pay in a given year can
be deducted from your gross income to reduce your taxable income.
For example, assume your
initial loan balance is $150,000 with an interest rate of eight percent.
During the first year you would pay $9969.27 in interest. If your first
payment is January 1st, your taxable income would be almost
$10,000 less – due to the IRS interest rate deduction. Property taxes are deductible,
too. Whatever property taxes you pay in a given year may also be
deducted from your gross income, lowering your tax obligation.
Stable
Monthly Housing Costs
When you rent a
place to live, you can certainly expect your rent to increase each year
– or even more often. If you get a fixed rate mortgage when you buy a
home, you have the same monthly payment amount for thirty years. Even if
you get an adjustable rate mortgage, your payment will stay within a
certain range for the entire life of the mortgage – and interest rates
aren’t as volatile now as they were in the late seventies and early
eighties.
Imagine how much
rent might be ten, fifteen, or even thirty years from now? Which makes
more sense?
Forced
Savings
Some
people are just lousy at saving money, and a house is an automatic
savings account. You accumulate savings in two ways. Every month, a
portion of your payment goes toward the principal. Admittedly, in the
early years of the mortgage, this is not much. Over time, however, it
accelerates.
Second,
your home appreciates. Average appreciation on a home is approximately
five percent, though it will vary from year to year, and in some years
may even depreciate.. Over time, history has shown that owning a home is
one of the very best financial investments.
Freedom
& Individualism
When
you rent, you are normally limited on what you can do to improve your
home. You have to get permission to make certain types of improvements.
Nor does it make sense to spend thousand of dollars painting, putting in
carpet, tile or window coverings when the main person who benefits is
the landlord and not you.
Since
your landlord wants to keep his expenses to a minimum, he or she will
probably not be spending much to improve the place, either.
When
you own a home, however, you can do pretty much whatever you want. You
get the benefits of any improvements you make, plus you get to live in
an environment you have created, not some faceless landlord.
More
Space
Both
indoors and outdoors, you will probably have more space if you own your
own home. Even moving to a condominium from an apartment, you are likely
to find you have much more room available – your own laundry and
storage area, and bigger rooms. Apartment complexes are more interested
in creating the maximum number of income-producing units than they are
in creating space for each of the tenants.
If
you are moving to a home for the first time, you are going to be very
pleased with all the new space you have available. You may have to even
buy more "stuff."
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