Owning a home provides great financial benefits.
In a recent research paper, opens in a new window Homeownership as well as the American Dream opens PDF file , Laurie H. Goodman and Christopher Mayer from the Urban Land Institute explained:
“Homeownership appears to help borrowers accumulate housing plus nonhousing wealth in a variety of ways, with taxes advantages, greater financial flexibility due to secured borrowing, built-in ‘default’ savings with mortgage amortization and nominally fixed payments, and the potential to reduce home maintenance costs through sweat equity. ”
Let’s breakdown 5 major financial benefits of homeownership:
1 . Housing is typically one leveraged investment available
Homeownership allows households in order to amplify any appreciation on the value of their homes by a leverage aspect. A 20% down payment results in a leverage factor of five, which means every percentage point rise in the significance of your home is a 5% return on your own equity. If you put down 10%, your leverage factor is 10.
Example: Let’s assume you purchased a $300, 000 house and put down $60, 000 (20%). If the house appreciates by $30, 000, that is only a 10% increase in value but a 50% increase in equity.
2 . You’re paying for housing whether or not you own or rent
Some argue that renting eliminates the cost of property taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs (property taxes, repairs, insurance, etc . ) are baked in to the rent payment already – and also a profit margin!!
3. Owning is usually a form of “forced savings”
Correctly shown that homeowners have a net worth that is 44X greater than that of a renter. As a matter of fact, it was recently opens in a new window estimated that a family buying an average priced home this past January could build more than $42, 000 in loved ones wealth over the next five yrs.
4. Owning is a hedge against inflation
House values and rents tend to go up at or higher than the rate of inflation. Whenever you own, your home’s value will protect you from that inflation.
5. There are still substantial taxes benefits to owning
We know that the new tax reform bill puts limits on a few deductions on certain homes. However , in the research paper referenced above, the authors explain:
“…the mortgage interest deduction is not the main source of these types of gains; even if it were taken out, homeowners would continue to benefit from deficiencies in taxation of imputed rent and capital gains. ”
From a financial standpoint, owning a home has always been and will always be better than renting.
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