In the past, owning a home was part of the ‘American Dream’; however, with the rise of a global economy which can require professionals to pick up and move for their job on a moment’s notice and with the turbulence of the housing crash of 2008, the love affair for home ownership as a means of fulfilling a vision of success and integrating one’s self into the community has become antiquated and somewhat distrusted. Therefore, I like to present a different side of home ownership to prospective purchasers or renters sitting on the fence, which is the financial benefits of owning a property. In other words, how can the home work for you rather than you work for the home.
One of the main financial benefits to owning a property is the creation of wealth over time. Owning a property can be an investment, particularly if you analyze the type of property which fares best in your market. And like the stock market, holding onto properties as investments for the long term and weathering any short term downturns, generally rewards the property owner with appreciation. As you pay down the debt, you build equity, which is like a forced savings account.
Secondly, home ownership is a way of controlling costs or expenses. We all have to live somewhere. As inventory fluctuates, the price of rent will also. When you own your home, the monthly payments are fixed. You will also have more control over cost saving choices. For example, if your utility bills are high, you can invest in energy saving appliances or automated controls which will lower your usage. And with historically low interest rates to boot, you can leverage someone else’s money through a home equity line to pay for those cost saving initiatives.
Which brings me to another major benefit of home ownership, tax deductions. Speaking of home equity lines, the interest portion of those payments are in fact deductible, as are the interest on your mortgage, the origination points of your closing costs and property tax. Furthermore, if you buy an owner-occupied multifamily (which tends to be my recommendation in the NYC area) you can also claim itemized deductions on the investment portion of the property for your utility payments including water/sewer, fuel and electricity, and what is referred to as depreciation. Depreciation is the reduction in the value of the property with the passage of time due to wear and tear, and you can write this off.
Continuing on, homeowners benefit from the capital gains exclusion when they sell the property. The federal and state authority will tax a homeowner on the profits of their home sale, similarly to how they tax your earned income each year. However, for a single filer selling a primary residence, there is a $250K exemption, and for a married couple, there is a $500K exemption! This illustrates how many homeowners turn their home into a retirement egg. And if an elderly homeowner doesn’t wish to sell their home, they can use the equity in a reverse mortgage and remain in the property.
In addition to the more obvious benefits already mentioned, there are plenty of others including how home ownership reduces your car insurance payment, improves your credit and aids in obtaining loans. There are already so many benefits, could there be more? Of course! As I mentioned previously, I highly recommend multifamily properties in the market I service and for a lucrative reason. The rent is very high in New York City. In fact, this city was ranked as the second most expensive city in the U.S to rent, which for a property owner, means you can collect a substantial income from your rental units. This passive income can pay for you to live!
In the age old debate of whether to rent or buy, it is especially true here in New York City that in the long run it is better to buy, and because of all these financial benefits of home ownership!