Some would-be homeowners remain skeptical about whether or not buying a home is a good financial investment. That’s because, in the not-too-distant-past, many homeowners across the country saw the investments that they made in their homes shrink almost overnight. Since then, there are consumers who prefer renting over buying a home to avoid the expenses and risk associated with buying a home. However, the benefits outweigh the disadvantages for many aspiring homeowners.
Then vs. Now: Why Buying a Home is a Great Investment Today
According to a recent Rent vs Buy Report from Trulia, buying a home is 33.1% cheaper than renting nationally. An important factor in the comparison is the currently extremely-low mortgage interest rates. In years past, mortgage interest rates were double or more than what they are now. The savings that buyers can gain by taking advantage of the low rates make buying a much more sound decision than it was twenty years ago.
In fact, the Trulia report pointed out the significance of low mortgage interest rates as the key to purchasing affordability in the current real estate market. “With rents and home values previously moving in tandem, shifts in the rent versus buy decision were largely driven by changes in mortgage interest rates,” the report revealed. To put it plainly, buyers have more purchasing power with low mortgage interest rates than with higher rates that have been more characteristic in the years before 2008.
Other Benefits of Buying A Home
Because mortgage rates are so low that buying is now generally cheaper than renting, buying a home is a great financial decision now more than ever. Aside from the savings that a mortgage can offer over rent in most areas, there are other financial factors that make buying a home a sound financial decision.
Here are 5 reasons buying is a good financial investment:
Mortgage payments can be fixed while rents go up.
Depending on the type of financing you get, you’re locked into a set mortgage payment for the life of the home loan you secure. Unlike rents that go up as the rental market grows, your mortgage will stay the same even as home prices increase in your area. And let’s face it – rents never go down.
Equity in your home can be a financial resource later.
As you pay your mortgage every month, the equity in your home increases. During that same time, the real estate value growth in your area can add value to your home in addition to the mortgage amount that you pay each month. The gradual equity growth in your home represents the wealth growth the homeowner can experience while living in the home. If you’re going to pay for housing anyway, put that money to work for you rather than your landlord.
You can build wealth without paying capital gains.
An important benefit to owning a home is that you don’t have to pay an annual capital gains tax on your real estate investment while you live in it. Unlike other forms of financial investments, the only annual tax you pay for your home is the property tax. The property tax is usually rolled into the price you pay for your mortgage every month, so you don’t end up stuck with a hefty tax bill at the end of every year.
A mortgage can act as a forced savings account.
Let’s face it: saving isn’t always easy. That’s why paying a mortgage is more beneficial than paying rent. While you’re paying a mortgage, you’re putting that money to work for you in terms of building up the equity in your home. In the sense that the equity in your home will allow you to see a return on your investment when you go to sell, paying your mortgage is like putting money into an investment that will pay you dividends in the future. Paying rent, however, is paying for someone else’s investment. That’s not spending your money wisely, in terms of personal wealth development.
Overall, renters can enjoy greater wealth growth than renters.
Renters don’t get to experience the benefits of generating wealth through homeownership. Their landlords do. Why not put that money to work for you, instead? Either way, you’ll have to pay for housing. Doesn’t it make sense to pay for housing that is a financial asset to you, rather than someone else?
In summary, buying a home offers more financial benefits than renting a home. While the liability and risk of renting seem much less compared to buying, the overall financial gains that you can get from buying make it a sounder financial decision. Especially with incredibly-low mortgage rates and home prices as low as they are now, buying a home can give buyers a better chance of building wealth through equity growth.
Ready to Get Started?
If you’re considering your first (or next) home purchase, make sure to start with a sound real estate strategy in place. Reach out to David Brodsky Properties to speak with an experienced real estate strategist about your individual situation. We’ll help you develop a sound strategy based on your needs and goals. Having a sound real estate strategy is like having a roadmap to guide you to your destination.
If you’re a current homeowner, please let us know how we can assist you with your next home purchase. The decision of whether or not to sell your current home can be a tough decision to make without sound consultation. We’re here to offer you an experienced, unbiased viewpoint to help you determine your best path. Let David Brodsky Properties be your trusted Austin area real estate strategist.
Read more about buying a home in the Austin area.