Dear Ray,
I’m not convinced homeownership is as good a deal for me as it was for my parents. Can you convince me why I should gamble with homeownership in 2014?
— T.W.
The mortgage crisis and subsequent real estate collapse left many people shaken and wondering if homeownership is still a good idea. I’m here to help restore your confidence in owning your own home.
I don’t think of homeownership as a gamble — it is certainly less of a gamble than the stock market. A recent “60 Minutes” story revealed how the stock market has been rigged by large investors, putting smaller investors at a disadvantage. With homeownership, you’re in the driver’s seat, and in most cases, you can rely upon steady appreciation, particularly in Seattle.
With a limited supply of housing and a growing population, you don’t need to be an economist to figure out that the demand for homes exceeds the supply.
Homeownership benefits
Here are my top five reasons why you should own a home:
•Homeownership conveys benefits that transcend the financial — Owning your own home changes you in unexpected ways. Homeowners behave differently than non-owners. Homeownership conveys confidence and an increased awareness of your role in the world around you. You’re part of a community, and you feel a connectedness you haven’t experienced before. With homeownership comes maturity and responsibility.
•Homeownership is the foundation of your savings-and-investment strategy — Although we’re in a new economy and a different housing market in 2014, the old rules about homeownership still apply: buy a home you can afford, plan to keep it longer and don’t use it like an ATM machine. Your grandparents knew this.
A decade ago, soaring property values and too-easy access to risky mortgages clouded people’s judgment, and many purchased homes they couldn’t afford. Equity became something to cash in, rather than preserve.
With hindsight, we realize that our grandparents were right: Your home equity should be treated like a long-term savings account — don’t touch it! Each month your loan balance declines, while the value steadily rises. Over time, you can build tremendous equity in your home.
•Homeownership offers important mortgage and tax benefits — For many homeowners, the mortgage tax deduction is the primary reason they first consider owning a home. The interest you pay on the mortgage is the largest component of your mortgage payment. The IRS allows you to deduct this interest from your income tax.
Likewise, your property taxes on a primary residence are also deductible.
If you take out a second mortgage or Homeowner Line of Credit, the interest you pay on that loan is also deductible.
Homeownership provides an excellent shelter from taxes, especially for the average taxpayer.
•Homeownership offers capital-gains exclusion when you sell — If you have lived in your home for more than two years, you qualify for the capital-gains tax exclusion. When you sell, you keep profits up to $250,000 if you are single, or $500,000 if you are married, and owe no capital-gains taxes.
Despite the upheaval in real estate values in the last decade, if you keep your home long enough, your home will one day be worth much more than what you paid for it. Having no tax on the first $250,000 (or $500,000 for couples) is a tremendous benefit.
•Homeownership is cheaper than renting — From the day you close the purchase of your home at escrow, your mortgage payment will never change. Your mortgage payment is fixed, while rents are subject to economic conditions and will rise and fall (mostly rise) over time.
As a renter, each monthly payment goes to your landlord, and you have nothing to show for it, whereas each mortgage payment helps build equity in your home, like a forced-savings plan.
If you’re going to make monthly payments, why not pay off the mortgage on your own home, rather than paying off your landlord’s mortgage?
Still want to rent?
Whether you choose to rent or own is a very personal decision. There are a number of factors you’ll need to consider before buying a home. But, overall, the benefits of homeownership far outweigh renting.
Try this: Ask friends and family who own their home if they would go back to renting. Let me know if you find anyone who says they’d rather be a renter.
RAY AKERS is a licensed Realtor for Lake & Co. Real Estate in Seattle. Send your questions to ray@akerscargill.com or call (206) 722-4444.