Why do 94% of millionaires attribute real estate ownership as a significant part of how they obtained and held their wealth? It’s probably because real estate ownership is always solid as a rock. In fact, the average homeowner’s net worth is 34 times that of a renter, and 77% of homeowners say owning real estate helped them achieve their long-term financial goals.
Are considering buying your first home now but don’t know if it’s a good time? Have a home that you’re thinking about selling? Or moving up to a bigger property? Or, are you thinking about buying a rental property? Either way, you’ll want to read this.
So why is real estate ownership always solid as a rock?
1. Tax advantages
Owning a home will allow you to get mortgage interest write-offs: you can deduct the interest on up to $1.1 million in mortgage indebtedness on your primary home, you can also sell your primary home for tax free profits up to $250,000 for singles and $500,000 for married couples if you live in the home for the last two of a five year period. And if you own rentals, all expenses associated with managing and improving your rental properties are also deductible towards your income.
The government doesn’t want to be in the business of housing 300 million Americans, so it long ago decided to offer huge tax advantages to promote home ownership and investment.
2. The power of leverage
One of the incredible and unparalleled advantages to owning real estate is that you can leverage other people’s money – i.e., the bank’s – to acquire an asset. For instance, you may only have to put 20% or even 10% or less of your own money down to acquire a whole asset. Yes, you have to pay interest for the privilege of using the bank’s money (a mortgage), but you still benefit when it appreciates or cash flows.
3. Just by paying, you’re paying it off
Of course, most people take out a mortgage to buy their home, and that means making a payment every month. But the great thing about real estate is that just by writing that check, you’re working towards paying the mortgage down – and off. In 30 years (or far less if you wish,) you’ll reach the point where you own the asset outright.
4. Or, you can pay it down faster
Unfortunately, the bank makes a whole lot of money off of your mortgage – called interest. In fact, most people pay more just in interest than they originally owe! But the beautiful thing about real estate is that you can choose to pay your mortgage off faster, essentially clipping huge chunks from those interest payments. Whether you send in one extra payment a year, pay every two weeks instead of monthly, or add some extra to each check, you can easily pay your 30-year mortgage off in far less time and at a steep discount.
5. Real estate is local
Real estate has regional, local, and even micro markets that are largely independent. So if you own a home in California, you’re not too worried if the real estate market crashes in China, or even if homes are losing value in Detroit. It really doesn’t affect your investment at all. So by purchasing a good house in a good neighborhood, you’re ensuring your investment.
6. And you can take control
Unlike a stock or other investment where there’s nothing you can do but sit back and hope it goes up over time, you can directly impact your real estate investments. Your fate is in your hands, as you can carefully select the right property, negotiate the right price and terms, and even fix it up to improve the value once you own it. You can do maintenance, redecorate, improve your landscaping, or even add an addition on your own time and dime, all of which adds value.
7. Rental prices are skyrocketing
In many cities – and especially the Sacramento metro area – rent prices are going through the roof. Demand is extremely robust, and they’re not building enough new apartment buildings or entry-level houses. The result is that there’s extreme upward pressure on rental prices – which is bad news if you’re a renter, but fantastic news if you’re a landlord or someone who’s invested in real estate.
8. You probably only have two choices – rent or buy
You have to live somewhere, and that means, for most people, they have a choice between renting or buying their own home. So unless we’re talking about buying rental properties or commercial real estate, there’s an opportunity cost if you don’t buy real estate and have to rent to live.
9. Housing demand will soon surge (so get in now)
The U.S. homeownership rate is currently about 63.7%, the lowest it’s been since 1990. But the demographics of homeownership will change dramatically in the next years and decade, with 80 million Millennials – those aged 18-34 – will jump wholeheartedly into home ownership. So far, they have been reluctant to buy, noncommital and saddled with unprecedented levels of student loan debt. But, as time goes on, their jobs will stabilize, incomes will increase, and the black hole of rent payments will swing them to home ownership en masse. So get in now!
9. You can buy with a low – or no – downpayment
Unlike other assets (like stocks, etc.) where you have to pay full price, you can assume a real estate investment with only a small fraction of the purchase price. In fact, the average home buyer puts only 14% down on a home purchase, and loans backed by the Federal Housing Administration allow you to put only 3.5% down. Additionally, there might even be a down payment assistance program or other loan product that allows you to put little – or nothing – down!
10. Real estate appreciates in value
There’s an adage that explains why real estate always goes up in value: “They’re not making any more earth, and there are more people every day.” While that’s an oversimplification, it is true that real estate prices have appreciated every single decade in the U.S. Sure, there will always be market corrections and even a few frightening drops – like during the mid-2000s real estate crash. But just by buying and holding, you’re assured that your investment will go up in price.
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Now you understand while real estate is as solid as a rock! Not only are interest rates still hovering at very enviable levels, but also banks are lending money again.
Contact me if you’d like information about qualifying for a great low-rate mortgage to purchase a home or refinance to save money.