Financial Benefits to Home Ownership

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!

Potential tax reform under the President elect and how that may affect property owners

Political feelings aside, there are whisperings of potential changes in the tax code under the President elect, that may have a significant affect on property owners looking to unload in the coming year. Since the election, I’ve been receiving phone calls from many clients I met with in the past, who are now rethinking whether it might be an advantageous time to sell that investment property or family estate, that they’ve been holding onto. Additionally, those looking to sell their primary residence and cash in on property values may also be facing lower tax brackets and a reduction of 3.8% in capital gains, which currently goes towards the Affordable Care Act. If the incoming President follows through with his proposed plan to eradicate the Affordable Care Act, then the capital gains tax will be lowered by 3.8%. See the following excerpt from Trump’s proposed tax plan:

Brackets & Rates for Married-Joint filers:
Less than $75,000: 12%
More than $75,000 but less than $225,000: 25%
More than $225,000: 33%
*Brackets for single filers are ½ of these amounts

The Trump Plan will retain the existing capital gains rate structure (maximum rate of 20 percent) with tax brackets shown above. Carried interest will be taxed as ordinary income.

The 3.8 percent Obamacare tax on investment income will be repealed, as will the alternative minimum tax.

It will be interesting to see how this unfolds, and how it might affect the market. Stay tuned.

How will the election affect real estate in the long and short term?

We are in the midst of what will certainly be remembered as a crazy election cycle, characterized by unexpected candidates and their antics. And although there is less than a week before the outcome for the next President is decided, there is still great uncertainty as to who that will be and what implications that decision will have on our economy as a whole and the real estate market in particular.

The economic and employment policies of the incoming President will have lasting, although not immediate, effects in the U.S. and abroad. A survey by national real estate entity, Redfin, showed that 27% of buyers thought the election would have a negative impact on real estate, up from just 15% only 3 months earlier. Although this sentiment was not shared by the majority, it does show an upward trend of anxiety among buyers about the future stability of the real estate market.

So, lets look at how the election and its candidates may affect the real estate market in the short and long term. Aside from buyer hesitation due to uncertainty before a candidate is announced, there are not many short term implications. One area of the market, the office sector, may experience tenants delaying resigning their leases until after the election is decided. However, the main concerns are more long term impacts such tax implications, which wouldn’t really take effect until 2018. Proposed changes in the tax code, would likely hurt small businesses most, as many lack the financial resources to hire a tax specialist in order to navigate the new regulations. Additionally, interest rates, access to capital and financing, and employment and job growth, will all factor into the long term health of the economy and the housing market.

There is generally more turmoil or losses in the markets, when the current President is not seeking reelection, as is the case this term. But the uncertainty of a new President and a new party coupled, has shown in the past to incur more of a down market than when an incumbent party takes office. Furthermore, markets also respond well to proposals to reduce corporate tax rates, which are currently 39% and the highest in the developed world.

Referral Group Forming in Brooklyn, Interested in Growing your Business?

I’m part of a newly forming BNI Chapter in Brooklyn.  We’re having a Discovery Day on March 3, 2015 and we’re looking for some GREAT professionals for our group.  For more info go to and remember to share with your contacts!