To Buy or Not to Buy

Purchasing a home is a major emotional and financial decision. Often times, people want to buy a home; however, emotionally cannot afford to commit to the home-buying process. They are, in fact, afraid. "My payment will be too high" or "What if I lose my job," are some of the "excuses" which I often hear. People do not realize that they are able to meet all the commitments over their life span.

In any event, when everything is said and done, here are some of the major advantages of buying a home:

1. Quality of Life. Home-buying and living in your home affects the quality of life. It adds to your confidence, giving you a sense of pride and satisfaction. You have a sense of emotional well-being as well as peace of mind.

2. Tax Deductibility of Mortgage Interest. The entire mortgage interest payment is tax-deductible and the "net" cost of the mortgage payment actually puts money in your pocket.

3. Tax Deductibility of Property Taxes. Similarly, the property taxes are due and payable twice a year and may seem like a lot of waste of money. Typically, property taxes are $1.10/$1,000 of your purchase price. However, the property taxes are also tax deductible and you get it back in the form of tax savings.

4. Appreciation Potential. Typically and historically, nationwide property values have gone up in value at 7% per year. In California and some other states, properties have, in certain good economic times, appreciated at the rate of over 20% per year. At 7% conservative rate, the property doubles up in value in 10 years. So, a property worth $500,000 will be worth $1,000,000, equaling a gain of $50,000 on a yearly basis. For an average person, it is difficult to save that kind of money.

5. Deferred Capital Gain Treatment. Real estate investment capital gains can be deferred by exchanging the property for like-kind property. So, when the property appreciates and you decide to sell it and do no want to pay the capital gains tax, you can buy another property of like-kind and avoid capital gains tax. This allows you to switch properties when required, for example, an area might be facing downturn or you might be moving, etc.

6. Once in a Lifetime Exclusion. Upon the sale of a personal residence, the IRS allows an exemption and one does not have to pay taxes on a gain of $250,000, if single and up to a gain of $500,000, if married. For example, if you're single and buy a property and live there for five years and the property appreciates by $250,000, you can sell the property and not pay any taxes at all.

7. Principal Accumulation. This is strongly tied to appreciation in the property value. Payments made toward the mortgage payment help you accumulate principal which essentially helps you establish a reserve savings account which you can later tap into by obtaining an equity line of credit or getting an equity loan, if needed.

8. Pride in Your Home. It is fun to invite people to "your" home and feel good about it. It also instills confidence in your family, your children and makes them more confident individuals.

9. No Landlord. You are in-charge and do not have to deal with a landlord who might not make repairs or maintain the property as you would like.

10. Leverage. Where else can you buy this size of an investment with 0-5-10% down. You can buy a property for a personal residence for as low as zero down or an investment property with 5-10% down, if your credit is good, and watch the investment grow. This, in turn, allows the net investment return to be much higher (than the actual appreciation rate on the value of the property). To follow up on the example earlier, if the property grows at 7% and doubles in value, since the amount invested in buying the property might be only $50,000 (at 10% down payment), the actual return is much higher on $50,000 investment.

11. The Real Cost of Renting! At $700 per month, with a 6% rental increase per year, you will pay $110,719 over a 10 year period. If the rent is higher, you can count on paying much more and not getting any return or tax benefits at all.

Madan "Raja" Ahluwalia is an Attorney at Law and Realtor. Raja possesses a thorough understanding of the real estate market and trends, based on years of involvement in real estate, both for his clients and for his own investment purposes. Contact Raja via e-mail at raja@kw.com and at 650.430.4023.

---

Selling by Owner Escrow or Closing Checklist

Home sellers should keep on top of their pending sale;... Read More

Spanish Estate Agents and Inspection Visits

The only way to buy a home in Spain is... Read More

The Value of Building Home Equity

There are numerous advantages to owning a home. One of... Read More

Setting Goals for Real Estate Success

The power of goal setting has been well documented and... Read More

Make Your House Earn Its Keep

Did you realise that there is a lot you can... Read More

Reinventing Real Estate, Part 2: Online and Empowered Consumers Are Taking Charge and Paying Less

Demanding consumers"Internet buyers tend to be better informed on market... Read More

Lake Havasu Real Estate

Lake Havasu real estate is a hot commodity. With surrounding... Read More

The Perils of the Property Ladder: Has Anyone Noticed the Silence?

There was a time when every conversation was focussed on... Read More

RESPA: The Real Estate Settlement Procedures Act

The Real Estate Settlement Procedures Act (RESPA) is a consumer... Read More

Homes For Sell By Owner ? FSBOs and Buyer Brokers

You're selling your home as a FSBO (for sale by... Read More

I Believe God Wants Me To Tell All In Real Estate

After years of experience in the real estate industry I... Read More

Real Estate News

Happy New Year, Make it a better world. "Pay it... Read More

When Showing Your Home

Here below are some of the reasons why buyers may... Read More

Real Estate Investing Deals That SkyRocket Your Net Worth 10-Fold

Consider these parameters for a real estate deal:Property Value: $250,000... Read More

Reprint Rights and How To Use Them To Generate A Steady Income

I can't emphasize enough how important it is to have... Read More

Selling Houses: The Basics of Design Psychology

I'm often asked about the basics of Design Psychology, which... Read More

Odors Can Make or Break The Sale of Your Home

It's amazing how important the sense of smell is to... Read More

Are Condo Hotels What the Orlando Real Estate Investor Has Been Looking For?

Earlier this year the Hawthorn suites in Lake Buena Vista... Read More

Real Estate Website Marketing - 5 Steps to Crushing Your Competition and Doubling Your Business

Getting your real estate website more traffic is easy if... Read More

Buying Houses at Discount Prices

Buying a house is the best way you can create... Read More

The Irish Property Market - Expensive But Worth It?

Lying on the edge of Europe facing out to the... Read More

What Can I Realistically Earn In A Lease Purchase Business?

If you're looking at Lease Purchasing as a business, you'll... Read More

Should You Use a Property Management Company or Manage Your Real Estate Investment in Florida?

When considering investment properties, first of all, it must be... Read More

Using Color Psychology to Sell Your Home

When painting your home for resale, choosing the right colors... Read More

What is Tax-Deferred Exchange?

Under Section 1031 of the Internal Revenue Code, owners of... Read More

Making a First Impression When Selling Your Home

So you've decided to take advantage of the booming real... Read More

Should you Sell your Home yourself?

Should you sell your home yourself? Yes and no. Yes,... Read More

Purchasing International Real Estate

Interested in investing somewhere other than your back yard?Management companies... Read More

The UK has Gone Property TV Show Crazy!

The UK has gone property TV crazy. There are now... Read More

Buy or Sell First?

When it comes to home buying, the ideal situation would... Read More

FSBO: For Sale By Owners Chapter IV [part 1]

Like a monarch, Red Haring reigned in the deep leather... Read More

Investment Concerns for Selling Your Home

Besides the emotional upheaval of uprooting from your home, your... Read More

Is An Old Home for You? ? The Pros

If you prefer a home that is unique and has... Read More