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Why Buy A Home? - 5 Good Reasons
26 08 05  24  13
-------- Part of The American Dream
Home Ownership can be very rewarding. You should seriously consider the benefits of owning a home (condominium, townhouse, single family). In this article you will find good reasons for owning a home, and good things to keep in mind while owning the home.
There are many reasons why people buy a property. These reasons include:
- Ownership & Pride: The peace of mind of knowing something is yours and can't be taken away (unless you can't pay the mortgage associated with it, if any). You also get the sense of accomplishment - having something great of your own, for as long as you make mortgage payments (if there is a mortgage). Furthermore, you have the ability to control how the dwelling looks like. You can do some remodeling, painting, or fixing to your heart's delight.
- Investment: To capitalize on the rapidly appreciating value of a home, as they usually increase in value faster than inflation.
- Tax Sheltering: In the USA, most owner occupied houses enjoy tax benefits. Capital gains taxes are waived on most home sales, and there is a real estate tax and mortgage interest deduction that can offset the cost of having a house (unless the mortgage interest is so high, that even after the deduction you might as well be renting).
- Financial Freedom*: You know that even if your salary doesn't increase (doubtfull), in 30 years you will not have to pay around a third of it in mortgage. (More years if you take second mortgages, less if you decide to pay early). Not having a mortgage loan can allow you to live with a smaller income and pursue your dreams -- or have more luxury.
- Ascend the Real Estate Ladder: Tired of your studio appartment? Difficult to move to that 4 bedroom McMansion*? You may want to build up some equity. Getting a loan is easier if you conform to the 80% of Loan to Value ratio (you put 20% down). It is difficult to put 20% down of a half a million dollar property, but it is easy to build up $100,000 of equity on a $200,000 property that appreciates to $300,000. Many people start small, with a Rental Appartment Substitute*, moving out of a small property and into a slightly larger and more expensive one every couple of years. Don't overdo it, as usually the mortgage balances also increase, and that means that it will take longer to achieve Financial Freedom* and Full Ownership.
What other reasons do you have for owning a home?
There are some things you must keep in mind when owning a home:
- Cash Reserves (or Emergency Fund): Keep 3 to 6 months of salary stashed in your Short Term Savings. In a sudden loss of job you will still be able to pay your mortgage and avoid issues with your bank (including credit issues, and foreclosure).
- Maintenance: Either you do it, or you pay someone to do it. You need to keep your house in top shape so that it can be sold if you need to. Also, good maintenance keeps appliances running longer, saving money on replacements.
- Tenure: You should plan to stay on a property for three years or more before you buy. Otherwise sales fees (agent, taxes, etc) may not warrant you the effort of buying.
- Insurance: You do not want to loose what you had worked so hard to achieve.
- Space to Breathe: You should try to be responsible, and acquire a property that fits within your means (mortgage payments, real estate tax, insurance, and maintenance should equal a third of your salary or less). By buying a property that helps you have a comfortable budget you can save for other goals in life, and you can also enjoy while doing so.
What other advice to do you have for home owners?
Any good references on how to buy a house? (this article is just about the benefits of owning it, not the process of buying).
Glossary Items:
- McMansion: Refers to detached, single family homes built in a thinly subdivided tract of land, resulting in disproportionally large and luxurious houses on extremely small lots.
- Rental Appartment Substitute: A Real Estate property with similar features (size, location, luxury) as the rental property where someone was living, but owned as a condominium. It provides equity and ownership advantages, with an inflation-adjusted decreasing rent.
- Financial Freedom: Not having to rely on a salary for the rest of your life. Living out of interest, rental income, small portions of the accumulated investments, etc.
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