|
Owning Your Own Home: The Greatest Investment
As a general rule, homes appreciate about five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region. Five percent may not seem like that much at first. At times, stocks appreciate at a much higher rate. Treasury Bonds offer the safest investment, averaging six percent.
But take a second look.
Presumably, if you bought a $200,000 house, you did not pay cash but are financing the home. Suppose you put as much as twenty percent down - that would be an investment of $40,000. At an appreciation rate of 5% annually, a $200,000 home would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual return on investment would be an impressive twenty-five percent.
Of course, you are making mortgage payments and paying property taxes, along with other costs. However, since the interest on your mortgage and property taxes are both tax deductible, the government is essentially subsidizing your home purchase. All of the interest and property taxes you pay in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $150,000 with an interest rate of eight percent. During the first year you would pay $9969.27 in interest. If your first payment is January 1st, your taxable income would be almost $10,000 less - due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Your rate of return when buying a home is higher than most for any other investment you could make. |
