50 years ago, homeownership was one of the primary goals of every adult. Our parents and grandparents worked most of their lives to pay off that 30 year mortgage. Times have changed. Families rarely stay in one place for 30 years any longer. Studies have shown that most people move every 7 years. So if you are unlikely to stay in a home for the duration of a 30 year loan, are there still financial reasons to buy a home in Charlotte rather than rent?
The fact is there are many financial benefits to owning a home. Understanding how a home purchase fits into your financial plans and goals is important.
· Building Equity and Wealth
Buying a home is a great way to build wealth. Paying a mortgage each month is really paying yourself, whereas paying rent is paying someone else’s mortgage for them, and in our area, it’s more expensive.
In the greater Charlotte, NC area, property values rose 13% in 2017. With an average cost of $200,000, the mortgage payment would be approximately $1225/month (assuming 10% down). By contrast, a monthly rental payment for a similar home averages $1400. Not only is the monthly cost more expensive, but as rents continue to rise (averaging 3%/year), the gap will continue to grow. Additionally, that rental expense does not build wealth as the $200,000 appreciates each year.
· Tax Benefits *
The tax savings benefits of home ownership has been, in some cases, diminished by the new 2018 tax law, particularly for higher priced and mortgaged homes. The total property & state income tax deduction has been capped at $10,000 for those filing jointly. The mortgage interest deduction for married filing jointly has been capped at $750,000.
The IRS tax code allows homeowners to a mortgage deduction from their gross taxes. In addition to this, you can also deduct real estate property taxes and some of the closing costs when you buy the home.
*This article is informational only and is not intended to be used as tax advice. Please consult with your tax professional.
· Income Producer
A property is an asset which can produce its own income stream. Renting part of the home can allow you to reduce the out of pocket cost of the mortgage. Even if you do decide to move, you might consider using the property as a full-time rental if you choose to buy another home or move to a new city. A property is an asset which gives you financial flexibility.
· A Hedge Against Inflation
Most mortgages written today are fixed rate loans. This means that for the duration of the loan, the payment will stay the same. The rental market always keeps pace with inflation and demand. When prices go up, so does the rental rates.
· Asset Diversification
Real estate is often a steadier investment than the stock market. Demand for housing typically remains solid even during difficult economic times. Adding real estate, as a primary residence or investment property is a great way to diversify your financial portfolio and ensure steady growth regardless of the economic conditions.
Buying a home is often an emotional decision. It’s an opportunity to put down roots and create a home environment for you and your family. As you plan to make this purchase, it’s important to understand how this property can fit into your larger financial plan. Adding to the excitement of the chef’s kitchen and spa-like master suite is the realization that you are building wealth and opportunity which will benefit your financial health.
At Loretta Realty Group, we will work with you and our lenders to help you move from a rental to your own home. Let’s get started. Register on our website www.lorettarealty.com or call us now at 704.907.7613.