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| 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 (as of April 2000). But take a second look… 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. Income Tax Savings 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. 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. Freedom and 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. 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. |
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