Benefits of Ownership>
Owning a home can bring financial rewards as well as a personal satisfaction that comes with knowing that you have a piece of the American dream. The financial benefits of homeownership range from the tax breaks that the owner can enjoy by writing off interest to the possible appreciation in the equity of the home over time.
To understand the full extent of possible tax benefits, it is strongly suggested that you contact your local IRS or speak with an accountant about your particular situation. Some of the financial benefits include:
1. Appreciation - Real estate values generally rise over a period of years.
2. Tax advantages - Homeowners may deduct mortgage interest and property taxes as an expense against income, while residential investors may write off cost recovery or depreciation.
3. Asset Growth - Being a tangible asset, real estate is seen by lenders as low risk, durable and marketable. Therefore, lenders are more willing to loan a high percentage of value. This allows owners to benefit by having control over an entire high-value asset with a low initial investment or down payment. As you pay down the mortgage, you build equity.
4. Real estate is marketable - it can be sold at a predicable price to a dependable group of available buyers, provided enough time is allowed to expose the property to those buyers.
5. Capital Gain Exclusion - As long as you have lived in your home for two of the past five years, the can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. Real estate provides its owner with valuable control and management of its value. It deals exclusively with financial benefits:
The personal benefits are less easy to translate into a specific list, but are in many cases equally compelling as a reason to buy. The following is a list of common motivations that inspire people to own their own homes:
- Pride of Ownership
- Owning my own home provides me with a deep sense of security. I need to own in order to feel that I have roots and really belong to my community.
- I can make my own decisions about design and decor.
- I can invest in upgrades that will not only bring me pleasure but can also add to the value of the property over time.
- I have control over the piece of property. I am not answering to a landlord.
Usually the question is whether a person should rent or buy. There are many factors that influence this decision such as how long a person intends to stay at one certain address. If there is a possibility that occupancy will last only a year or two, then it is probably advisable to rent unless you are willing to lease the property out as a rental once you move on. The only time it makes sense to buy with the intention of a quick turn around is if the property purchased was under-valued or if the real estate market is appreciating so rapidly that the increase in equity will exceed the cost of selling the property.
Another approach is to buy the property and lease it to tenants when it comes time for you to move on. This makes sense only if you can rent the property at a level that will cover your mortgage payment. You must also be certain that you will have the time and patience to act as a landlord, and the mortgage must be structured appropriately. And finally, be sure to assess what the impact of holding onto the property will be on your financial statement. It is possible that by holding onto the first property to rent, you will not qualify to take a mortgage on a second property.
The decision to buy has as much to do with your personal needs as it does to do with the financial reasons that can motivate a buyer. Do the math to understand the monetary ramifications. Take time to understand your own motivations before you rush into this decision. Homeownership has its definite rewards. Pursue them with wisdom!