Are you wondering about the benefits of buying a home?
Today, the homeownership rate in America is 67.4%. While some enjoy the freedom of renting, it’s safe to say that the benefits of homeownership typically outweigh the benefits of renting. From building equity and tax benefits to home appreciation and flexibility, homeownership is a sound investment.
If you’re considering purchasing a home, you’re going to want to read this. This article outlines the eight most prominent benefits of buying a home as opposed to renting.
1. You Can Build Equity
Of course, the number one benefit of owning your home is the ability to build equity.
If you’re new to the world of real estate investments, consider equity to be the difference between what you can sell your home for and what you owe. In other words, your home equity is the portion of your home that you actually “own”. This means that each month you will own a larger percentage of your home and your equity will grow.
With homeownership, it’s important to understand that equity is considered to be an asset. This asset will make up a portion of your net worth and can be used later in life. This could be for anything from borrowing from your equity to funding your future retirement plans.
2. Your Home Can Appreciate
In most cases, real estate is an asset in which the value appreciates over time.
This means that your home will continue to gain in value as the years go on. Of course, this appreciation will depend on a number of factors both within your control and outside of your control.
For example, you can update and renovate your home to increase the overall value of your home. This is an aspect of home appreciation that you can control as a homeowner. On the other hand, you will have very little control over local market conditions and the general economy.
3. Monthly Debt Paydown
Each month that you make a mortgage payment, a portion of your home loan will be paid down. As a result, you’re successfully increasing your net worth on a month-to-month basis.
In a sense, this is like making a monthly deposit into your own bank account! This is as opposed to tenants who pay monthly rent to their landlords. Instead of building their own wealth, they’re simply helping to pay the mortgage of their landlord.
If you remain in your home for 30 years, you can look forward to owning your home outright. This also reigns true if you pay off your mortgage before your amortization period.
4. There Are Multiple Tax Benefits
In outweighing the costs and benefits of renting versus owning, it’s crucial to consider the tax benefits of buying a home.
In the rental world, there are very few tax benefits for tenants. Of course, renters will save on costs such as property tax and property insurance. Instead, renters are simply responsible for covering their monthly rent, utility costs and their necessary insurance.
When it comes to owning property, it’s important to note that there are a number of tax benefits with homeownership. For example, homeowners are able to deduct their mortgage interest as well as the property taxes each year. With the many fees associated with homeownership, it’s safe to say that these deductions are incredibly worthwhile.
Depreciation is another important tax benefit to consider when it comes to real estate investing. This is a significant tax advantage and is unique to real estate. This is an annual tax deduction that helps to reduce taxable rental income each year.
These deductions are especially important to consider when outweighing the financial implications of buying a home versus renting.
5. The Element of Flexibility
Are you searching for flexibility?
One drawback of owning your own home is the fear of stability. For renters, signing a one-year lease allows for the freedom to live around the world and avoid feeling tied down. Once that one-year lease is finalized, renters can decide to extend their lease or pack their bags and move onward.
What many renters don’t consider with homeownership is that owning your home also allows for a degree of flexibility. If you’re not yet ready to settle down, why not lease your home?
With this, you can opt for short-term rentals on a daily, weekly or even monthly basis. If you’re looking for something more long-term, you can opt for an annual rental.
Becoming a landlord is a simple way to gain freedom while also earning income from your property. While you’re traveling the world and experiencing new adventures, the rental income from your tenants is helping to pay your mortgage. Now that’s a win-win situation!
6. Cash Flow
Similarly, if you’re looking for cash from time-to-time while still living in the home, you can rent out as little as a single room on AirBnb or VRBO. Need some short-term cash flow? This just might be the move for you.
You can also rent out your driveway or garage for parking. Of course, the value of your spot will be dependent on location. If you want to make money from this, use SpotHero to list your parking space or Neighbor to offer long-term car storage.
You can also create cash flow by renting out spare space for physical storage. In today’s shared economy, the options are almost limitless.
In contrast, tenants are almost never allowed to sublease out rooms (or any other part of the property) without the express written consent of their landlord.
7. Fixed Living Costs
In purchasing a home, you’ll benefit from fixed living costs that don’t rise over time with inflation.
Let’s consider the example of a 30-year fixed-rate mortgage. With this, your cost of living will be largely fixed throughout this period of time. While the cost of home repairs, insurance premiums and taxes may raise, you can generally depend on your mortgage payments to remain the same.
When we compare this to the rental market, it’s simple to understand the advantages that owning presents.
In general, tenants can count on their landlord to raise the rent on an annual basis. While landlords often have to abide by a legal rent increase, this increase can be detrimental.
8. You’ll Own an Asset That’ll Benefit from Inflation
At the end of the day, buying a home means that you will own a real asset.
A real asset is a physical asset. A home is considered a real asset because both the land and the structure built upon it have intrinsic value. Owning a real asset is a great way to diversify your investment portfolio and to add a sense of long-term security. The value of the structure stems from the time and materials required to build it and its ability to provide shelter.
When inflation inevitably takes place, assets rise in value. In contrast, inflation will cause the value of your savings (cash) to plunge. This is yet another reason why owning real estate is a smart investment.
It is a powerful way to hedge against—and benefit from—the inevitable force of inflation.
The Undeniable Benefits of Buying a Home
Did you know that the average American moves 11.7 times in their lifespan?
When it comes to owning versus renting, it’s safe to say that the benefits of buying a home are endless.
From building equity and owning a real asset to becoming a landlord and paying down your monthly debt, homeownership can be a powerful decision. If you’re weighing the costs and benefits of homeownership, allow this guide to inspire you to save for your first down payment.