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Do I Rent Or Own???????
Things to consider before taking on the largest investment of your life. Presented by Trident Financial Services, LLC. Here are some Home Buying Tips:
1. Get out of the RENT trap! You're throwing money away Most people rent (instead of owning) because they're unsure if they will be living in their area very long. Or they just moved to the area, and want to get a "feel" for the market before they buy. For some, the idea of assuming the responsibility of a mortgage is a deterrent. Whatever the reason, STOP RENTING! Owning real estate is one of the most fabulous ways to build wealth! The Power Of Leverage Can Give You Incredible Returns!
You magnify your purchase power with what is called leverage - the use of borrowed money to purchase an asset that is likely to appreciate, magnifying your profit. When you buy a home and take out a mortgage (as most people do), you are borrowing money from the bank. Therefore, when your home appreciates, you keep the profit on a home you haven't even paid for! This example clearly illustrates the power of leverage: If you
were to pay all cash for a $150,000 home, and you sold it for $180,000, the $30,000 in profit represents a 20% return on your original investment. However, suppose you took out a mortgage (like most buyers), and put a 10% cash down payment on your home. You paid $150,000 for the home, and later sold it for $180,000, making $30,000 in profit. You made $30,000 on a $15,000 investment (your down payment)! That's a fabulous 200% return using the power of leverage! Why do you think people buy properties and rent them out? You pay the mortgage, while they use leverage to profit when the property appreciates. The price you sell your home for, less the price you paid, is appreciation. Real estate normally appreciates at an average annual rate of 5%, providing you're not in a depressed market. Compared to the more speculative stock market, this represents a more reliable return on investment. And when you add the power of leverage, you can make 5% per year off borrowed money! Owning A Home Is The Ultimate Tax Shelter! Consider the tax benefits that you are currently not enjoying by renting. As you're probably aware, the IRS does not allow you to write off your rent. When you make a mortgage payment, a portion of your monthly mortgage payment is interest expense on the loan, which is fully tax deductible! The good news is during the early years of repaying your mortgage, a large percent of your mortgage payment is interest (versus later in the loan, when you are paying down the home). Your tax deduction from writing off interest on your mortgage payments can be great! Furthermore, you can write off your annual property taxes and a portion of your closing costs. Tax Bill of 1997 Most importantly, thanks to a provision in the tax bill of 1997, when you sell your home, $250,000 of the profit from the sale of your home is tax free if you file a single tax return and $500,000 of the profit is tax free if you file jointly! In other words, you are most likely going to pocket all of the profit when you sell your home! Add leverage, price appreciation, and the fact that your profit (up to a certain amount) won't be taxed, and buying a home is simply one of the best investments you can make! Let's Look Beyond the Finances: The Psychological Benefit Of Owning A Home The last time you started hammering a nail in the wall to hang up a picture, you were probably wondering if your landlord would disapprove. With home ownership, you are in control! You don't have to get permission to bang in a nail. If you want to make improvements, like fixing up the bathroom or remodeling the kitchen, this a project that you can control and enjoy. Most importantly, owing a home is the American Dream! The pride of ownership dates back to the founding of this country. 2. Owning A Home Is The Ultimate Tax Shelter! If you don't own a home, you're missing out on one of the best tax shelters available, period! The U.S. tax code heavily favors home ownership. First, you can write off the full amount of your annual mortgage interest payments. Unfortunately, in the early years of paying mortgage payments, you are paying mostly interest. The good news is you can write all of these interest payments off. These amounts can be quite substantial! In addition, you can write off your annual property taxes. The 1997 Tax Bill The largest advantage of home ownership is the generous capital gains tax exemption when you sell it. The 1997 tax bill allows you to keep up to $250,000 of the profit without paying any capital gains tax. So if you buy your home for $150,000, and in fifteen years you sell it for $400,000, you can keep all of the profit ($250,000). Joint returns allow you to keep up to $500,000 of the profit tax-free. What other investment is this attractive? If you buy stocks, you have to pay capital gains tax when you sell them. If you buy bonds, you have to pay taxes upon their maturity. If you invest in IRAs, you have to pay taxes on the funds when you begin drawing from the accounts. However, home ownership allows you to keep $500,000 in profit, tax free (if you are married) and $250,000 if you are single! The Road to Wealth Sarah and Sam bought their first home when they were 30 for $150,000. They put 10% down on the home loan. They sold it seven years later for $195,000. They rolled the profits (less selling expenses) into a new home, which they bought for $250,000. Fifteen years later, they sold the house for $450,000. Their initial $15,000 investment is now worth $245,000! In this case, they combined powerful capital gains exemptions with the power of leverage - they used the bank's money to finance their homes. This simple example illustrates how wealth can easily be created by taking advantage of the U.S. tax code. Are you still renting? Every payment you make to your landlord is depriving you of your future wealth! Get pre-qualified for a mortgage before you begin looking at homes. Not only will this give you an exact price range for your purchase, but a pre-approval letter will add muscle to your offer. Like buying a car, searching for a home can be impulsive and emotional. Don't let one aspect of the home (its appearance for instance) be the sole factor in your buying decision. Sit down and map out a strategy. Answer the following questions before you begin searching: 1) Where do I want to live? What type of home do you want? Do I want to commute? What area has the highest price appreciation? How much can I afford? How much do I have for a down payment? The first thing you should do is get you pre-approved with a Mortgage Professional. That way, you'll save yourself a lot of time by not looking at homes you simply cannot afford. If you found this information helpful and would like to take the next step. Please contact Dean Cardella at Trident Financial Services, LLC (269) 488-7444 for a free, no obligation Mortgage pre-approval. |
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