Owning vs. Renting
With rising home prices and tightening restrictions on loans, many are wondering whether there are still any advantages to purchasing a home today. Renting has become an inexpensive alternative as increasing down payments make it harder for many to purchase a home, despite lower interest rates. While renting may seem cheaper in the short run, it is important to remember that there are many major benefits to owning a home.
Purchasing a home has always been a good source of investment. Homes appreciate and provide equity for owners to build up throughout the years. If it comes time to sell, all of that equity will transform into cash. Additionally, equity is useful if there is a need to obtain cash immediately—this can be done via a home equity loan, which is held against the portion of the initial mortgage that has already been paid off.
Homeowners know that their properties are great tax shelters. Both mortgage interest and property taxes are deductible, which leads to big savings over the years. Additionally, since homes are usually purchased as an investment, they are expected to increase in value. Usually, any increases in value are subject to a capital gains tax.
However, houses are generally not subject to this tax if a homeowner:
Lives at the tax-deductible property for two or more years and;
Obtains gains less than $250,000.
This means that homeowners obtain virtually tax-free gains, which provides them with a very beneficial, and an otherwise hard-to-get, savings plan.
A home can also provide additional income as a rental property. Many homeowners obtain assistance in paying their mortgage by leasing out a room in their house. This option is not lucrative, but it provides additional support to make payments easier. It’s also used by many landlords to double up on their monthly mortgage amounts in order to pay off their home even faster.
All of the spending that is done on a home goes directly into increasing the value of the home. Any new appliances, trimmings, environmental upgrades or structural improvements thereby increase the value of the investment. In a rental unit, in comparison, renovations are not usually permitted. If they are, they are simply increasing the value of someone else’s asset, instead of financially benefitting the individual who is financing the improvement.
Even if the value of the home does not increase drastically, or barely even keeps up with the inflation rate, it can provide a huge advantage as a forced savings plan. Although it requires paying into interest, it forces the owner to put money away towards something of value when they otherwise would not.
Should You Sell Your Home?
Generally, the largest barriers to owning a home are the down payment and the initial transaction costs. Closing fees, lawyer fees, registration and other varying costs may deter potential purchasers from making the jump. In the long term, however, these costs are neutralized, or overtaken, by the equity being built in the home. When considering the tax savings, asset potential and possibilities for additional income, purchasing a home can end up being a more sound financial decision than continuing to rent for years on end.
Contact the Buy My House Now team today and get a free consultation regarding your home. While you decide whether to sell or rent, we will visit the home and appraise it ourselves. We can make an offer within 24 hours and close the deal within the week.