Buying a home can be a great way to build wealth and protect your assets. Learn how home ownership can be a great investment decision for your financial security.
SHARON LEE – APR 10, 2017
Some people may think of buying a home as a stressful experience. Some people believe, that home purchase comes with an enormous commitment that can burden you for years. However, buying a home can be a great way to build wealth and protect your assets. Learn how homeownership can be a great investment decision that bolsters your financial security.
A Net Worth Boost
Furthermore, research shows that on average, homeowners’ net worth is far higher than that of a renters’ net worth by up to 36%. And this wealth gap keeps widening every year. One explanation for this gap is the concept of forced savings. In this ituation person is essentially forced to save a certain amount of money. And, this payment comes every month for a significant expense, such as a house or a car.
Great example of forced savings is paying for a mortgage. Paying for your mortgage month after month forces you to save a portion of your income. This portion will help pay off your property, which works towards increasing your home equity and net worth. Renters, on the other hand, increase the net worth of their landlords without building equity or assets.
Tax Benefits of Homeownership
People shouldn’t consider buying a house as an full expense. Homeowners enjoy a variety of tax breaks that you might not know about. Here are some of the tax breaks homeowners may qualify for:
Mortgage Interest Deductions
The monthly mortgage you must pay when you buy a house is split into two parts: one portion goes towards the actual principal amount, and the other portion pays off your interest on the mortgage. Furthermore, the mortgage interest on your main and second residence is tax deductible.
To claim the mortgage interest, you must itemize your deductions on a Form 1040 Schedule A. Otherwize, you can just claim the standard deductions. You should get a 1098 Form from your mortgage lender at the beginning of every year. This form shows the total amount you paid as interest for the previous year that you can claim for tax returns.
Property Taxes
Real estate taxes, that you pay on your house, may be filed as a deductible. You can itemize the deductions on a Form 1040 Schedule A.
Mortgage Points
There are two types of mortgage points, and each point represents 1% of your total mortgage. Origination points, which is a fee that you pay to the borrower to compensate for their work that goes into processing a loan, are non-deductible. Finally, discount points, which allow you to get discounted interest rates on your mortgage, are tax deductible.
Some of the interest that you pay on home equity loans are also deductible, along with interest on home improvement loan, and qualified moving expenses.
Using the Power of Leverage for Investing
One advantage of buying property for the purpose of investing is that you can borrow funds to make the purchase, as opposed to other investment opportunities such as stocks and bonds. Another advantage is that when inflation hits and prices increase, sometimes your house value will increase as well. When you borrow with a fixed rate mortgage, you will still be paying the future monthly payments with a currency that’s depreciated in value. After several years, the equity on your property will increase. And, once the principal amount is all paid off, you will have a debt-free asset that will continue to appreciate, depending on market conditions.
Compared to stacking up cash savings in your bank account and watching it lose value to inflation, investing in a property can secure your money in the long-term and act as a hedge against dollar debasement. Whether for diversification of your investment portfolio, or to secure a property where you and your family can grow and build memories, buying a home can be a timeless investment vehicle.