Is Home Ownership the Right Investment for You?
Are you planning on purchasing a home soon? Acquiring a home is one of many crucial decisions you will make in your life. Before you close the deal, it is important to review the advantages of homeownership and any potential risks you may encounter.
We’ve listed a few things you ought to consider to determine whether or not homeownership is right for you.
Long term investment opportunity
Real estate prices generally appreciate over time. This does not happen overnight, though. You have to stay in your home long enough to benefit from seeing the value of the property appreciate.
Although real estate usually increases in value because of the land where the structure stands, the house’s value may depreciate if it isn’t adequately cared for or renovated as necessary.
Building equity
Equity is the difference between how much you still owe on your mortgage and your home’s current market value. Your equity increases as you pay your mortgage. However, it is important to make sure that your payment goes toward lowering your loan balance instead of only paying off your interest.
As you pay your mortgage, you essentially save money as the value of your home increases. If and when you do sell your property, you would likely get back what you paid and more if you’ve stayed in your home long enough for its value to appreciate.
Location is a factor in market value
While real estate value is expected to appreciate over time, location is a significant factor in property pricing. All other factors being equal, the value of real estate property in prime locations is much higher than the value of a same-sized home in a different area.
Capital gains exclusion
If you sell your home, the law allows you to keep the profits and not pay capital gains taxes. Keep in mind that this applies to your primary residence only. Your second home or vacation property is not eligible for this exclusion.
Take note of the requirements to qualify for capital gains exclusion. Firstly, you must have owned the home for at least 24 months within the last five years up to the date of sale. Next, you should have resided or stayed in the property for at least two years during the five years before the sale. Finally, you should not have profited from the sale of another primary residence within the two years leading up to the most recent sale.
Tax deductions
Homeownership has the notable advantage of allowing you to benefit from tax deductions. You may be able to deduct some of the expenses you incur from homeownership from your taxes. Possible deductions include the mortgage interest on your principal residence and a second home. You could potentially save thousands of dollars in tax deductions per year.
High upfront costs
The cost of buying a home can be prohibitive. On top of the property’s actual value, expect to pay from 2% to 5% of the purchase price in closing costs. This includes the application fee, the appraisal fee, attorney fees, property taxes, mortgage insurance, home inspection, first-year homeowner’s insurance premium, title search, title insurance, prepaid interest, origination fee, recording fees, and the survey fee.
Potential depreciation
Not all homes increase in value. Certain economic conditions can prevent home values from keeping up with inflation. The home’s value could also depreciate over time if the structure and grounds aren’t adequately maintained.
Longer time to liquidate
Homes are generally challenging to liquidate or turn into cash. Furthermore, you will still have to make mortgage payments and spend on maintenance while waiting to sell your home. All these factors add up to a significant financial responsibility.
The bottom line is that while homeownership comes with many benefits, it also entails significant risks. You need to know what you are getting into to avoid challenges and obstacles down the line. NM Home Insurance can guide you in making sure your assets and your new home are protected.
Although owning a home is an attractive prospect for most people, the investment isn’t for everyone. Before taking the plunge, it is crucial to weigh the investment benefits against the risks. A thorough comparison of the pros and cons will ultimately help you make a more informed decision.
About Daniels Insurance, Inc.
At Daniels Insurance, Inc., we have a unique understanding of the risks that businesses like yours face on a regular basis. With the backing of our comprehensive coverages and our dedication to customer service and quick claims resolution, your business will be fully protected. For more information, contact us today at (855) 565-7616.