On Real Estate: Homeownership still outpacing other investments, inflation
By Jim Hagerty
Even in a market where distressed properties are common, homeownership continues to be a sound long-term investment. For those who understand the simple concept of “buy low and sell high,” turning even the smallest property into a mountain of cash is a daily reality.
The same rings true for owner-occupied properties, especially in difficult economic times, when buyers need reassurance when choosing to jump into the market. For first-timers, buying a home can be a daunting experience. With hundreds, perhaps thousands, of properties on the market, where to begin, even with an experienced Realtor in tow, can take some time.
Then, comes time to open the pocketbook. Having a home appraised is an out-of-pocket cost, a down payment can empty reserve accounts in a split second; and staring 15, 20 and 30 years of mortgage payments in the face can seem like a tremendous price to pay for a square of ground. Enter the real value of owning a home and the decades-old truth that real estate is the only investment that has proven to remain solid over time, even when the housing scope is soft.
Examine the true value of why sinking money into real estate makes sense, especially when homes are priced to sell.
→ Tax benefits—A percentage of property taxes and mortgage interest is always tax-deductible and can be the difference between receiving significant returns and owing the IRS cash. This is a notable benefit when homeowners use tax returns to make improvements to their properties.
→ Stable mortgage payments—Mortgage rates almost always result with stable monthly payments, which are typically on pace with what landlords are getting in rent. Borrowers get more house for smaller monthly payments. With subprime balloon and ARM products a thing of the past, 15-, 20- and 30-year fixed programs abound. While renters battle annual increases of up to 3 to 5 percent, home loan borrowers are locked in for the lives of their loans.
→ Freedom—Aside from violating building and other environmental codes, homeowners have the freedom to do what they wish with their properties. Renovations, additions and landscaping—all of which can increase future value—never have to be cleared with a landlord.
→ Investment for the future—At retirement age, the net worth of homeowners ranges from 10 to 50 percent higher than that of a typical renter, most notably one who spends his life renting houses. Even during tough economic times, appreciation on real estate, over time, will almost always outpace other investments and most importantly, inflation. This is even true during housing bubbles when values drop drastically. Although some borrowers find themselves underwater during stages of a bubble, values always correct themselves to reflect what is going on in the market in terms of what real estate is actually worth. Simply stated, real estate helps hedge inflation and allows homeowners to protect cash that could otherwise be lost in rent and much riskier investments.
From the Dec. 22-28, 2010 issue
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