Some people may think of buying a home as a stressful experience that comes with an enormous commitment that can burden you for years. However, buying a home can be a great way to build wealth and protect your assets. Learn how homeownership can be a great investment decision that bolsters your financial security.
A Net Worth Boost
Research shows that on average, homeowner’s net worth is far higher than that of a renters’ net worth by up to 36%. And this wealth gap keeps widening every year. One explanation for this gap is the concept of forced savings. This is a situation where a person is essentially forced to save a certain amount of money every month for a significant expense, such as a house or a car. Paying for a mortgage is a great example of forced savings. Paying for your mortgage month after month forces you to save a portion of your income to help pay off your property, which works toward increasing your home equity and net worth. Renters, on the other hand, increase the net worth of their landlords without building equity or assets.
Tax Benefits of Homeownership
Mortgage Interest Deductions
The monthly mortgage you must pay when you buy a house is split into two parts: one portion goes toward the actual principal amount, and the other portion pays off your interest on the mortgage. The mortgage interest on your home is tax deductible.
City or county real estate taxes that you pay on your house may be filed as a deductible.
There are two types of mortgage points, and each point represents 1% of your total mortgage. Origination points, which is a fee that you pay to the borrower to compensate for their work that goes into processing a loan, are non-deductible. Discount points, which allow you to get discounted interest rates on your mortgage, are tax deductible.
Using the Power of Leverage for Investing
One advantage of buying property for the purpose of investing is that you can borrow funds to make the purchase, as opposed to other investment opportunities such as stocks and bonds. Another advantage is that when inflation hits and prices increase, sometimes your house value will increase as well. If you borrow with a fixed rate mortgage, you will still be paying the future monthly payments with a currency that’s depreciated in value. As years go by, the equity on your property will increase, and once the principal amount is all paid off, you will have a debt-free asset that will continue to appreciate, depending on market conditions.
Questions about buying or selling a home? Contact Lisa G 704-264-4941 or Liz B 704-607-9918