Additional Reasons for Owning Your Home

 

In previous posts I have discussed how owning your own home can help build family wealth, and that part of the reason is the historical trend in the appreciation of residential Real Estate. In this post, I will discuss other reasons to seriously consider buying your own home.

1. Although already covered, it bears repeating that it is likely your new home will increase in value over the long term. This trend will probably continue because this country currently has a shortage of housing. Over the last three to four years, this shortage is one of the three primary reasons for the significant rise in home prices. The other two reasons were artificially low interest rates and over four years of strong economic growth. Interest rates are still historically low, even though higher than the best rates of the last few years. True, the economy is currently sluggish and may get worse before it gets better. The best analysts are still saying that prices will remain the same, or increase very slightly; if prices fall, it probably will not be significant, and will recover fairly rapidly. 

2. In addition to the market driving the increase in home value, you will build home equity with each monthly payment, a solid investment in your future.

3. You can have more control over your monthly housing payment. Principal and Interest do not change over the term of the lease. Escrow payments for insurance and taxes do tend to grow, but usually not at a fast pace. Private Mortgage Insurance, if you have it, is eliminated when your equity reaches 22% of the loan. All of this helps to predict expenses in the long-term.

4. Owning a home also means protection! Studies show as your home’s value appreciates over time, it usually outpaces inflation year over year.

5. You may get a tax deduction. It may be possible to take advantage of a mortgage interest tax deduction and other tax benefits.

6. When you pay your mortgage on time each month, you will build credit, opening other avenues to borrow more money, perhaps for a “better” home in the future or perhaps an investment property or other investment.

7. As the owner of your home, you have the freedom to make it your own. You choose how to modify your home and decorate it the way you want. You don’t have to ask anyone for permission. You have greater privacy and control over your living space. You can own pets without having to worry about landlord rules and added fees. Similarly, if you have a backyard space you may be able to make it your own and help you to enjoy the outdoors.

8. A well-maintained home can offer a sense of pride and accomplishment. It’s yours to do with as you wish. Make the most out of it.

9. The commitment to your home helps build longer-term stability. The whims of an outside force such as a landlord are removed.

10. Surveys show homeownership does, in fact, result in increased happiness, but not to the extent predicted by the future homeowners themselves.

Owning your own home is not always the best solution for everyone or every family. There are perfectly sensible reasons for renting a living space. Only you as an individual know your values and life goals, so you make the decisions. However, home ownership is part of the American dream available to those who want it. Whether you rent or buy, I am available to help you weigh the decision and achieve your goal.

If I can help with these decisions or to find a new place, contact me at 301-873-2106 or email me at BReynolds@LNF.com

Appreciation of Real Estate

In my previous article, we talked about how owning real estate is a major component of increasing family wealth. In this article I want to address the growth in residential real estate value. Just like the stock market, we tend to be aware of whether prices are increasing or decreasing. It takes an effort to research the long-term trends.  However, I want to make you aware just how much real estate has appreciated in value over the last 20 or 30 years. It's very similar to the stock market. If we look at a graph of how the stock market has changed over the last week, month, or the last quarter you may see a lot of volatility and instability. However, if you look at that same information but over 30-year time span, you will see a persistent trend in the increase in value of the stock market, and generally individual stocks.

Similarly, if you looked at the short-term trends in the value of residential real estate, you may get a misinterpretation of what is really happening over the long term. Just like the stock market, if you look at the long-term value of real estate you will also see a trend of increasing value.

I'd like to show you this with two graphs for our own area; the Frederick-Gaithersburg-Rockville Maryland area. This information was put together by the Federal Housing Finance Agency.

The graph to the right shows an upward trend over the last 20 years where the increase in value of
residential real estate has gone up 149.4%. Yes indeed, there were periods where there is a decrease in value, and to be honest, became a real problem for many people. However, those who able to stick it out, were handsomely rewarded.

 To the left, the graph shows similar information, in a slightly different format and over 30 years. As you can see there is some volatility over the years but on average there's an annual appreciation of 4.4% in the area that we live in.

Financial advisors used to frequently use the metaphor of a four-legged table to build a financially stable wealth plan. One of those legs was and still is Real Estate. As your assets increase, you do want to spread them or diversify them to build additional stability. Consulting a certified Financial Advisor to build a strong plan is essential.*

Another way to grasp the concept, long-term appreciation is like being paid interest on a bank account of someone else’s money; the home was bought with a lender’s money. Nevertheless, the homeowner retains the new equity (value) of the property.

Residential real estate is an excellent way to begin working toward building wealth for your family. It is well worth the effort to get skin in this game for the health and prosperity of our families. If you are preparing to purchase your first home, now may be the time to make the requisite sacrifices to get there. Work that extra job, sleep in your parent’s basement, have a smaller wedding, drive used cars, etc. Getting trapped in the rental cycle can be difficult to recover from.

* I am not a Financial Advisor, I am licensed to help people buy and sell Real Estate.  Consulting a certified Financial Advisor to confirm this information and to build a sound financial plan is advisable and highly recommended.

 

 

Why Buy? Growing Family Wealth

Like most people, as the new year approaches, I've begun to think about next year. We begin to think about what we're going to do in the new year. Where should we go on vacation? Should I get a new job? Should I buy a new car before this one dies out? What life changes should I make that are best for my family.

These kinds of short-term questions are important, but we also need to be thinking in the next 10, 20 and 30 years down the road. It can be shocking to find out how many people live paycheck to paycheck or are not ready for retirement when the time comes.

Owning your own home can provide at least one foundational leg for growing long term wealth. Research shows the value of homes appreciate over time. In fact, over the past three years, my own home has appreciated 30% in value. And while my home is worth substantially more, my mortgage payment has not changed and will not change.

Unfortunately, this is not the case if I were to be renting my living space. When we rent, we are really paying the landlord’s mortgage payment, insurance payment, property taxes, condo and/or condo fees and possibly parking fees. The rest of the payment is cash for the owner.

In today's market, there is a severe shortage of housing which allows landlords to increase rent to current market value each time the lease is renewed. Rent payments rarely go down.

Most mortgages are paid back over 30 years. Each payment includes interest and principal. At first, you pay much more in interest, but as time goes by, you pay more and more for the balance of the loan until you own it all.

To a large extent, that is what the above graphic is trying to show. Paying the principle on the loan and the appreciation of home value combine for significant growth in family wealth. Meanwhile, the renter not only does not get those benefits, but they are providing them for some else’s family.