Top 7 Benefits of Home Ownership, Part 2|
by Tim Lockhart
The last few years have been really difficult for the real estate market, and many people are wondering if now is really a good time to buy a home or not. Many other people want to buy a home, but are stuck in the rent trap because the banks continue to tighten their lending standards and shut people out who would have qualified only a few short years ago. This article will discuss the Top 7 benefits of owning a home versus renting. In Part 1, we saw that homeowners enjoy steady payments helping them fight against inflation and the wonderful tax savings we can have by being able to deduct the mortgage interest from our regular income. Now, we’re going to look at the benefits of building equity. We’re now ready for benefit #3.
3. Build Equity through paying down mortgage. Not only can you put more money in your pocket this year by deducting your interest payment from your current income, the principal portion of your payment each month pays down your mortgage balance building equity. Equity in your home is very simply the difference between what your house is worth and what you owe to the bank. Each month, a portion of your payment goes towards paying down the amount that you owe, so it is kind of like a little savings account. When you rent, you are still paying down the mortgage, the only difference is you’re putting money in your landlord’s equity by paying the principal portion of his or her payment. We all work very hard for our money, especially today with the tough economy. How do you feel about just giving your money away? Would you just give away your hard earned money to pay into someone else’s savings account every month? Well, this is exactly what you are doing when you rent. The shift of paying rent to paying a bank, as we’ve seen so far, provides you three huge benefits. First, you can stop the annual rent increase letters you get at the end of every lease from your landlord. Second, you’re able to get more money out of your paycheck right away. And, third, you’re able to shift from paying into your landlord’s equity to paying into your own. And, in many cases, because of the troubles in the real estate market, you can actually pay less each month for a mortgage than you can in rent for a comparable home.
4. Build Equity through appreciation. You may not be thinking there is any appreciation to be gained in a home by listening to the news over the last couple years. All they’ve been talking about is the huge declines in property values. Well, it really depends on where you are. Certainly on the east coast, west cost and areas like Las Vegas, which saw huge double-digit increases in home values, also saw huge decreases when the market turned around. But, in places like north Texas, were we live the prices of homes have been a lot more stable. Prices here didn’t see the huge increases as other parts of the country, but they didn’t see the huge declines either. Regardless of where you live, many experts are saying that the market has pretty much bottomed out. We can’t really be sure where the bottom of any market is until enough time has gone by to look back, but price ups and downs mostly affect speculators who are trying to buy and sell quickly to get rich quick. That’s not the focus of this article. What we’re talking about is buying a home for your family to live in, give you stability over the years with a 30-year, fixed rate mortgage, and stay there for several years as you pay down the mortgage. If you are in a home for the long run, and by that I mean 5 to 10 years or longer, then you don’t need to buy at the absolute bottom of the market. There are many, many homes on the market right now for very reasonable prices, many cheaper than they were a few years ago.
As an example, the median price of a home in Wichita Falls, Texas in 1983 was $50,000, and by 2009 the median price of a home had increased to $115,300. This appreciation didn’t increase as much as many other parts of the country, but we didn’t see the huge drop either. If you remember, 2009 is two years after the mortgage crisis first hit, and the north Texas region home values just kind of tapered off a little. So, if you had bought a $50,000 home in 1983, and kept it until 2009, you would have gained $65,300 in value. Furthermore, putting this together with paying down the mortgage can really open your eyes to the benefit of owning versus renting. Let’s just say for argument sake (because I have to pick some number), that you got a mortgage at 6% interest and borrowed the entire amount from the bank, so you had no money out of your pocket. By 2009, you would have paid down the balance to just under $13,000. So, your equity build up from paying down your mortgage would be $50,000 - $13,000 or $37,000. So, your total equity in the house is $65,300 + $37,000 = $102,300. And, even if you are now living in a home worth $115,300, your monthly payment is based on that original loan of $50,000, and so you’re your payments are still only around $500 per month while the market rent would have increased to about $1,000 per month. So, I ask you. How long would it take you to save up $102,300 on your salary, living in a $115,300 home paying market rent which would now have increased to about $1,000 per month? If you had bought, versus renting all this time, your monthly payment for your home would have stayed at about $500 every month rather than doubling over that time, and you would have built up $102,300 in equity.
You are going to provide a home for your family, and you’re going to do it one of two ways. You are going to own or you’re going to rent. In another article, I will speak on the struggles many families are having buying a home in today’s market, and it may be that someone else like a bank is making the decision for you, forcing you to rent. Please check out other articles we have on our website www.QuelleProperties.com, and see the solutions we offer to those who have been turned down by the bank, but still want to own a home. There are other options, and we even allow you to build equity while you rent. Check it out.
Tim Lockhart is the President of Quelle Properties, Inc. They’ve been real estate entrepreneurs since 2002 and their mission is to improve their community by increasing home ownership in north Texas. He has many articles and news items related to real estate on his website, www.QuelleProperties.com.