65 percent of Americans are homeowners. Although there are many countries with higher rates of homeownership, one thing is clear: the average American wants to own a home. It’s a key component of the American Dream.
But what’s it about owning a home that makes so many people want it? With the average price of a home going up every year, one has to wonder whether being a homeowner today makes any economic sense.
Well, the benefits of homeownership are powerful. Even with surging property prices, there are many reasons you will still want to own at least one home.
Read on for the lowdown.
More Cost-Effective Than Renting
If you don’t fancy owning a home, the alternative is to rent. Renting has its fair share of benefits, no doubt. The short-term nature of rental agreements gives you great flexibility, which means you can move to another city on a whim -something most homeowners cannot do until they sell the property.
However, at the end of the day, it’s the financial side of things that has the biggest impact. Like everyone else, you want to save more and achieve financial freedom. In the long term, owning a home is more cost-effective than renting.
To illustrate, let’s crunch some numbers.
In 2022, the average price of a home was about $400,000.
You buy the home by taking out a mortgage at a fixed rate of 5% pa over 30 years. In the end, you’ll pay about 600K in interest, for a total cost of about $1 million.
On the other hand, the average monthly rent crossed $2,000. If you rent for 30 years, you’ll end up spending no less than 720,000. Adjust for future inflation over that period and period rent increases and the total rent will surpass $1 million dollars.
At the end of the 30 years, the renter and the homebuyer would have spent roughly the same amount. But here’s the deal, the buyer will have a real estate asset to their name. And considering the fact that homes typically appreciate, the $400K home would have gained a lot of value over the years.
Increase Your Net Worth
Talking of property appreciation, buying a home is an ideal way to grow your wealth. Although most homebuyers don’t consider their homes a real estate investment because it doesn’t generate an active income, it still is an investment.
Take the example above. After about 30 years, the $400K will probably be worth more than double that figure. Of course, there’s inflation and buildings wear down, but the real value is on the lot the house stands on.
Even if you don’t sell the property several years down the road to realize the gains, there are other ways to take advantage of the investment. For instance, you can take out a home line of credit whenever you need some money. Since it’s a secured credit facility, the interest on it will be much lower than what you’d get on an unsecured personal loan.
Or, if you have extra rooms in the home (assuming the kids have since left the nest), you can rent them out or even set up a vacation rental. This will enable you to generate some passive income off the property.
Tax Benefits
When tax season rolls around, taxpayers are always looking for and making the most of tax deduction opportunities. If you’re one of these people, you’ll be pleased to learn that owning a home comes with significant tax benefits.
First up is the mortgage interest. If you’re a single filer, you can deduct the interest you pay on the mortgage up to a certain limit ($750,000 worth of mortgage in 2022). The limit is lower for taxpayers filing as a married couple.
If you use a part of your home as a home office to run a small business, there are deductions you’re entitled to. Other opportunities for a tax deduction include real estate taxes, private mortgage insurance, and certain types of home improvement expenses.
Of course, the tax is rarely that simple and clear. Once you’re a homeowner, consult a qualified tax professional to assess your situation and advise on the tax benefits you can enjoy.
The Opportunity to Own a Custom Home
For most people, custom homes belong in movies and magazines. They are only owned by celebrities and rich entrepreneurs.
Well, if you belong to that school of thought, it’s time to get out. A custom home doesn’t necessarily mean a multi-million-dollar home. It’s any property that’s been built to meet the owner’s unique preferences and tastes and you can have it.
You can buy a home that’s already been built, but you can also build a home from scratch. The vast majority of people go for pre-built homes, but it’s important to know that you choose to build yours and, in the process, get the chance to customize it. There are experienced home builders that will deliver what you want, and on budget.
A custom home adds pleasure to the homeownership experience. Unlike those who buy and embark on remodeling projects, you’ll have greater peace of mind knowing every feature you wanted is already built into the home.
Don’t Miss Out on the Benefits of Homeownership
As home price increase and renting becomes more attractive to adventure-loving millennials and Gen Zers, owning a home can lose its allure.
Make no mistake, though. The benefits of homeownership, as this article has demonstrated, are life-changing. When you buy a home, you get an asset that will increase in value over the years while entitling you to a handful of tax deductions.
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