Advantages of Home Ownership

It is true that renting has its advantages. You have the freedom to move without the worry of selling a home first. You have the flexibility of weekly, monthly, 12 month or longer rental terms. You don't make repairs or pay property taxes. Renting or leasing is perfect for some lifestyles or at certain times in our lives such as going to college, when you first move away from home, when you are on a temporary job assignment or brand new to an area and want time to experience the area and look around.

Most people (especially financial planners or advisors) would agree, however, that the sooner you can become a homeowner the better for many reasons – some personal, many more financial.

The Personal Advantages of Home Ownership ~ Your home is your castle; a place of permanence to call your very own. Perhaps you now need more living space for a growing family or desire a bigger yard or a view to enjoy. Or perhaps you want more freedom than you have in a rental unit to adapt your living space to your specific needs, landscape the yard, keep pets, build a work shop, or all the above.

The Financial Advantages of Home Ownership ~ For many people, a major motivation for home ownership is financial advancement. For most people, however, it’s a combination of personal and financial reasons. Owning real estate, and particularly your principle residence, is a first rate investment for many reasons:

• Scheduled Savings – When you buy a home, mortgage payments serve as a type of scheduled savings plan. Over time, you accumulate ‘equity’, an ownership interest in the property that you can often borrow against or convert into cash by selling the property. When you make rental payments you will never see that money again. In fact, you are just helping your landlord make his mortgage payment so he can reap the many financial benefits of property ownership. When you make the mortgage payment you are paying yourself with interest (appreciation potential actually) to live there – not only will you see your money again you will very likely get a great return on this money spent.
• Stable Housing Costs – Rents and leases typically increase year after year and sometimes unpredictably. The principle and interest portion of most mortgage payment plans remain unchanged throughout the entire payment period creating more stability in housing costs.
• Increased Value – Real property has nearly always increased in value, or ‘appreciated’, over the long term. In many Orange County neighborhoods we have seen home values roughly double in the period from 2001 to 2006. This increased equity value is a good as money in the bank to the homeowner. You can borrow against this equity using, for example, a HELOC (home equity line of credit) or a refinancing, or sell the property converting the equity into cash.
• Build Your Net Worth – As you use your increased equity to ‘springboard’ up to a more valuable property you are ‘building your asset base’. For example, instead of owning a home you paid $750,000 that is appreciating at a certain annual rate you move up to home for $1,500,000 that is now appreciating at the same or even higher rate – twice the dollars or more over the long term and this number is compounding every year!
• Tax Benefits – Interest paid on a home mortgage is usually deductible – this is a tax advantage not available to renters (your landlord gets this benefit)
• If you refinance to consolidate other debts, the interest on the home equity loan is tax deductible whereas the interest on those other debts were not (cars, boats, etc.)
• Property tax paid is a deduction against your ordinary income.
• Currently you can sell your principle residence every two years and exclude up to $500,000 (married couple filing jointly) in capital gains taxes AND you can use this exclusion over and over every two years!
• When you sell a property after 1 year of ownership the capital gain is taxed at your ‘long term’ capital gains rate.