By: Shoshana R. Cohen
Simply put, owning a home is a guaranteed roof over your head. Historically, homeownership has been used as a vehicle to create long-term wealth because national home values tend to appreciate at a rate of 3.5% per year. Please note that this rate is extremely regional and in Southern California an 6.3% increase is more typical. Additionally, there are also instances which the cost of ownership can be less than renting.
By owning your own home, you can also experience personal freedom by being able to redecorate, remodel, or make improvements as they see fit. There are fewer rules that you must abide by, including restrictions on pets, children, or noise levels.
More importantly, buying a home and taking out a mortgage creates leverage, which can be a tool for wealth accumulation. Homeownership is also another way for you to diversify your investments. Portfolio diversification to any portfolio is crucial, regardless of how much money you have in the market. Do not get swayed by other “investments”, such as jewelry or artwork, as these items are extremely subjective and it is highly unusual to make money off of them.
Reason #1: Wealth Accumulation
There is no debt-rich quick scheme. Therefore, you may want to buy a property that fits your needs and economic goals. Homes are unique investments because they usually appreciate over the course of time, as opposed to other investments that immediately depreciate like cars. Yes, we did have a significant economic downturn in the 2008. However, a key to accumulating long-term wealth through a home is the idea that you should hold onto the property. As you pay your monthly mortgage payments, you build equity in your home. This is a form of “forced savings”, which can be important when you pay down the balance by a substantial amount.
Reason #2: Tax advantages based on current federal tax laws
There are also tax advantages associated with buying a home taking out a mortgage. Property taxes can be itemized for tax deductions from your federal tax and some state taxes. A mortgage payment is composed of both principal and interest, where the interest is tax deductible up to $1 M mortgage debt and is dependent on the tax bracket you are in. Tax deductions are especially important in the beginning years of the mortgage when interest represents the bulk of each monthly mortgage payment.
Reason #3 Elimination of Landlord
When you rent a home, you do not own any tangible property and you are also subject to your landlord increasing your rent or selling to another owner who then wants occupancy. While landlords can raise monthly rent payments by a certain percentage each year, mortgage payments can be locked in. However, as a new homeowner, you must be aware of the responsibilities that come with homeownership, such as an increase in utility bills and in maintenance obligations. You should not jeopardize their major source of income when performing upkeep. It is important for new homeowners to strike a balance between sweat equity and outsourcing their homeownership responsibilities.
If you are a First-Time or Experienced Homebuyer, feel free to contact CenTek Capital Group at 310–275–3202 to take advantage of any of our gratis mortgage services. We are available on M-F from 7:00 AM- 7:00 PM to run what-if scenarios. We also return calls on the weekends.
We know that breaking into the housing market alone can be rigorous and time-consuming. With 30+ years of experience, CenTek Capital Group has funded every type of loan, issuing a detailed up-front loan approval for many programs and closing purchase transactions in about 25 days. CenTek acts as your partner throughout the financial process, guiding our clients through mortgages and more. Our team maintains long standing relationships with a vast network of funding sources to gain unparalleled access to the most aggressive real estate financing options and solutions on the market. Ultimately, we utilize our technical knowledge in conjunction with our decades worth of professional connections to help clients and their agents prevail with their offer and close the deal.