Home Investment Builds Financial Security
By Charles Hopkins
Published 11/27/2007 | Finance
Buying a home should be the largest wealth creator for people young and
old. Many people rightly believe that having a home is their financial
leverage and something that they can enjoy at the same time. The
American dream is having a home of their own. Many Americans are trying
to keep a dream alive today in what they think is an unfortunate real
estate market. However, just checking a few facts will bring the
reality of the financial decision into focus.
Real estate has consistently shown appreciation. Real estate has
generally appreciated about 5% a year overall. Having 10% down on a
200,000 house is an investment of 20,000. That house would increase
about 10,000 for the first year. Earning 10,000 on an investment of
20,000 is equivalent to 50% earnings which would be very hard to do in
the stock market. If you put 20,000 into the stock market and got a 5%
gain, you would receive a 1,000 profit. Clearly, real estate lets you
come out ahead.
If you look at it over a longer period of time, say you put 10,000
into the stock market in 1996 and the average S & P return would
make that investment worth about 21,500 today which is an increase of
11,500. The median home price in 1996 was 140,000 and today that same
house would have gained nearly 100,000 in value. Real estate again
shows itself to be a substantial investment method to riches.
Home values tend to increase at a steady pace and can be less
volatile as stocks can be up and down. There has never been a time when
housing has not come back up from the down turn in values. The reason
is Americans have the belief system and the desire to own their own
home and will sacrifice and make it happen and thus keep fueling the
Taxes are another reason why real estate helps anyone to develop
financial security. Homeowners save nearly 100 billion annually on
mortgage interest and property deductions. In most instances, the
interest and property taxes can be reduced from the homeowner's gross
income to reduce taxable income. In the early years, this is
substantial since most of the payment is interest.
When a homeowner sells their home, they also save if they have
lived in their home for at least two years. A couple can save 500,000
of the profit tax-free and a single homeowner can save 250,000. Each
group can invest in a new and bigger home and receive the same tax
break when they sell that home.
There is no reason to fear home ownership in the market that is
today's what with foreclosures, etc. Simply look for the type and
payment that you can afford and resist the temptation to use your home
for a "bank" when you need money as in an equity line of credit. The
home will be your best asset in your financial portfolio and will
continue to make you feel warm and secure in your financial future for
many years to come.