Advantages of Homeownership

It’s all yours

When you own a home you have the satisfaction that you own the door you walk through everyday. You have the freedom to decorate and remodel your home with colors, material and techniques that match your personality. And of course the dollars and time spent will most likely add value to your home, not the landlord’s home.

Tax benefits

Through the magic of math, the IRS tax code and a few assumptions, paying a monthly rent of $1100 can be comparable to a monthly housing expense payment of $1,533.

Own your home Rent your home

Loan Amount	$200,000	Rent payment	$1,100.00
Interest Rate	6.00%
Mortgage Payment	$1,200.00
Monthly Real Estate Taxes	$333.00
Total monthly payment	$1,533.00	Total monthly payment	$1,100.00

At this point renting looks a lot better on the pocket book.

Yearly interest paid	$12,000.00	Yearly rent paid	$13,200.00
Yearly taxes paid	$4,000.00
Yearly taxes and interest	$16,000.00	Yearly rent paid	$13,200.00
Income tax bracket	X 30%
Yearly tax deduction	$4,800.00	Tax deduction	$0.00
Monthly deduction = / 12	$400.00	Monthly deduction = / 12	$0.00
After Tax Payment = Total payment minus tax deduction $1,533.00 - $400.00	$1,133.00	Total payment	$1,100.00

Of course you will need to consult your tax advisor for your tax scenario, however, the above illustration shows the affordability of homeownership compared to renting.

Your home as an investment

Real estate is a very powerful and consistent builder of wealth. And through leverage homeowners can attain a large return on an initial small investment. For instance, Mrs. Buyer can buy a $200,000 home with a $20,000 initial investment or “downpayment”. After one year of homeownership and 5% appreciation rate Mrs. Buyer owns a home worth $210,000. In one year Mrs. Buyer has realized an equity gain through appreciation of $10,000. With an initial investment of $20,000 Mrs. Buyer has made $10,000 or a 50% gain of her initial investment.

Of course, appreciation gains can be made at different rates in different parts of the country and in different economic environments. However, it wouldn’t be unrealistic to assume a 5% appreciation rate over a 10-year period.

Upon the sale of your home you will keep the gains you have made through appreciation. Why? The current tax laws permits, in most cases, a single person to shelter $250,000 and married couples filing a joint return to shelter $500,000 in gains on the sale on their home from taxation. This is a powerful wealth builder. Real estate must be utilized in your overall investment strategy. Most people, however, can’t visualize the potential growth in their nest egg through real estate acquisition so the chart below illustrates the potential.

Year	Home Value	Mortgage Amount	Equity

1	$233,100	$187,666.72	$45,433.28
2	$244,755	$185,189.53	$59,565.47
3	$256,992	$182,559.54	$74,432.46
4	$269,842	$179,767.37	$90,074.63
5	$283,334	$176,802.97	$106,531.03
6	$297,501	$173,655.73	$123,845.27
7	$312,376	$170,314.37	$142,061.63
8	$327,995	$166,766.94	$161,228.06
9	$344,394	$163,000.71	$181,393.29
10	$361,614	$159,002.18	$202,611.82

$222,000 home, 5% yearly appreciation, $190,000 mortgage @ 6%

Just think if you rented for the last 10 years. How much equity would you have built in the house you rented? To you $0, to your landlord about $202,611.82. You see, when you are renting you are paying a mortgage, it is your landlords mortgage.

The above illustration depends on a number of factors such as type of home, school district, neighborhood amenities and other factors that a real estate professional can help evaluate.