(Mar 21, 2023)
To assist you in making your decision, we have a detailed list of the benefits and drawbacks of owning a home.
Benefits of Home Ownership
Purchasing a property is an essential financial judgment you can make. It creates a safe environment and symbolizes a remarkable achievement.
Here is how you can benefit from owning a home:
It Is Less Expensive
If you take a fixed-rate mortgage to buy a home, you won’t incur additional charges from market inflation. A fixed-rate allows you to pay the same amount each month for interest and principal until you clear your debt.
In contrast, renting a house is more expensive because it is prone to increased living costs due to inflation. For instance, a $1,000 monthly rent will increase from $1,000 to $4,800 per month, assuming an inflation increase of 4% every year.
You Can Customize Your Home
Have you ever lived in a rental house in which you wish you had changed certain things? It could be ugly carpeting, worn-out paints, or old electric appliances.
The downside is that you cannot make changes unless the homeowner accepts. Moreover, even if you make the required improvements, it only benefits the landlord when you vacate the house.
But when you own a residence, you have complete freedom to customize it as you desire. For example, you can install hardwood floors or change the carpeting at your convenience.
Long-Term Investment Scheme
Homes can occasionally depreciate, but this is uncommon. Unlike a car, which depreciates with each mile covered, a home’s value increases over time.
Your house may be so dilapidated that it is unusable, but the land beneath the house could still be worth a lot of money. So, if you live in your home for a long time, there’s a good chance you’ll sell it for a decent profit in the future.
You Can Build Equity
Every month, you pay for rent, and it all goes straight into your homeowner’s pocket. But when you own a residence, your mortgage payment builds up into equity.
As you pay your mortgage, your equity grows because less payment goes toward interest and more into bringing down the balance on your loan. If you have pending family expenses, you can cash out a chunk of your home equity in the form of a loan. Interested in becoming a first time homebuyer? Learn more here!
Guaranteed Control
When you rent, you live by someone’s rules, which means the landlord has the right to terminate the agreement and ask you to exit without due notice.
Similarly, some landlords may be too stingy, hence, won’t make the necessary repairs and home improvements when required.
However, owning a property gives you complete control over your habitat. You don’t have to call a landlord for minor fixes or a complete revamp of the entire apartment. Water, utilities, and home maintenance are all under your full control. Additionally, you won’t encounter limitations on keeping pets or unnecessary noise prohibitions. You can start a vegetable garden and adopt home pets at your discretion if you wish.
You are only required to abide by the rules enshrined in statutes such as homeowners’ associations.
Exemption of Capital Gains
When you choose to trade your home, you can qualify for capital gains exemption. The Internal Revenue Service (IRS) allows solitary house owners to enjoy up to $250,000 in tax-free income and up to $500,000 for spouses. However, this only applies to your primary residence and not a second home or holiday property.
Before you are eligible for capital exemption, you should meet a set of criteria. You must have owned the property for at least 24 months in years preceding the settlement date. Furthermore, you shouldn’t have gained from any sale of another home within the period before the most recent sale.
The Downside of Property Ownership
Why isn’t everyone a homeowner if owning a house is so desirable? The truth is, there are significant reasons why people prefer to rent instead of owning a property.
Here are the setbacks of property ownership:
Expensive Upfront Costs
Closing costs on a home loan can range from 2% to 5% of the original price. Such charges include local taxes, insurance, home inspection, first-year insurance rate, title insurance, among others.
So, if you intend to buy a $100,000 residence, you should save at least $6,000 to $12,000 to fund upfront costs in addition to the 20% deposit.
According to experts, it could take up to five years to recoup upfront costs. Learn more about closing costs here.
Maintenance Costs
When you own a home, you are the first line of defense for repairs. For example, a breakdown of your HVAC system will require you to hire a technician to get the cool air to flow again. Furthermore, lawn mowing, bush trimming, gutter cleaning, and snow plowing are aspects of homeownership maintenance.
Ongoing Costs
In contrast to stock, which you can sell in a couple of days, real estate usually takes longer to sell. You could have full rights to $500,000 in tax-free capital gains, but it doesn’t imply that you have instant cash.
Even if you are determined to sell the property, you must continue making mortgage payments and paying for routine maintenance. If you purchased another house before selling the old one, you’d be spending on two houses concurrently.
Home Buying: The Pros and Cons
Home buying can be beneficial, considering the potential to accumulate equity. In addition, it protects you against unruly landlords and guarantees the freedom to customize the house as you wish.
But before you sign a contract, it is critical to assess the benefits of investing against the risks. A logical comparison of the merits and demerits can help you decide whether to invest in real estate or find better returns elsewhere.
Contact a local investment advisor or realtor if you want to learn more about homeownership. Realtors can assist you in running the numbers and determining which option is best for you.
Interested in learning about becoming a resident in Florida or moving there? Read more.
(Mar 21, 2023)
