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!

To buy, or not to buy? That is the question.

With tremendous waves of uncertainty about the future of the country, so far as economically, environmentally or politically, many potential home buyers are becoming less confident about whether to invest in real estate at the present time. Some people are nervous about an impending recession, while others are terrified as to who will be running the country come next January. And then there are folks in areas of the country rebounding from devastating natural disasters such as Hurricane Matthew’s impact on the eastern coast of the U.S., flooding in Louisiana and wildfires across California.

So what do I tell my clients when they ask the inevitable question, “When is the best time to buy?” I always tell them the best time to buy is when you have the need or desire. Trying to time the real estate market to hit that opportune prime buying time, is like rolling the dice at a casino. The truth is that the prime time to buy has a lot more to do with the circumstances going on in your life than what everyone else is or isn’t doing. You may have been relocated by your job or hired for a new position. Your family could be growing, or you recently became engaged and will be getting married in the near future. These life events generally precipitate a change in your housing needs, and could present a need for you to buy.

When working with a buyer on the fence, I also ask them what they would do with their money in the bank, if they don’t buy. In other words, if they are looking to purchase more so out of a desire to invest in real estate, they are seeking a way to make their money work for them. If they choose not to purchase a property, what would their alternative game plan be? I would advise them to look at potential rates of return on real estate prospects versus their alternative investment strategies. Many of the buyers who fall into this category don’t have an alternative plan or see the obvious alternatives, such as the stock market, as too risky. I would then point out that keeping their money in the bank won’t even keep them ahead of inflation.

People will always try to time the market to capitalize on their investment, but in trying to do so, you may be ignoring factors that are much more significant to you. Lets say you are currently renting, but want to buy during the next downturn in the market. You could be waiting for years, meanwhile throwing away your money in rental payments being applied towards someone else’s mortgage. If we look at StreetEasy’s latest market report for August 2016, the median rent in Brooklyn is currently $2,932/mo. That’s over $35,000 annually, which could be applied towards equity in a property rather than flushed down the drain, while you’re waiting for the market to drop.

Furthermore, we find ourselves in an unprecedented time of historically low interest rates. What I mean is they can’t get much lower, and they can really only go up. When you break down the concept of interest rates, you begin to realize that a potential price break of say $50,000 dollars on the average home price of $926K in Brooklyn (according to the Corcoran Q3 Market Report) doesn’t save you money if it occurs in the future when interest rates are even just a point higher. That interest hike over the course of a 30 year loan will cost you over $80,000. Meaning you would be $30K ahead by paying $50K more for the property when interest rates were a point lower.

This is precisely the reason why trying to time the market can be a fruitless endeavor. The best time to buy is when you have the need or desire to buy. A better pursuit would be to strategize what kind of property will best suit your needs, enabling you to build equity, create passive income and make your money work for you!


Welcome to Bushwick!

stbarbarasbushwickFirst impressions are not always correct. That would certainly be the case for many upon venturing to Bushwick for the first time.  People are often put off by the drab vinyl buildings, but if they stroll a little further down the block, they would eventually discover a diamond in the rough.  There are many of these gems such as St. Barbara’s Cathedral or the mansions lining Bushwick Avenue (previously known as doctor’s row in Bushwick’s hay day) which coexist with the drab buildings to create a kind of harmony in contrast.  Along with the buildings, the neighborhood offers a similar diversity with its residents.  An interesting microcosm exists in Bushwick, which is a product of a place which attracts different people for different reasons.  For many, there is an allure due to affordable rents and proximity to city life, and for others, there is a sense of adventure, a place which hasn’t established itself and can therefore create new identities.  Many artists and musicians have flocked to Bushwick for all of these reasons including the abundance of discount studio space. More long term residents which come from many walks of life, have raised families and established businesses in Bushwick, and we’re continuing to see that trend with the influx of younger and more recent residents.  Many have opened bars, cafes, restaurants, galleries, boutiques and purchased property in the area, exhibiting their long term investment and appraisal of the neighborhood.

The investment in the infrastructure of this neighborhood by its residents derives from the quality of life they have enjoyed here.  Some of the amenities which are attracting new residents to the area include food spots, entertainment and more.  The local favorites are Tortilleria Mexicana Los Hermanos for fresh tacos, Verde Coal Oven for authentic Sicilian fare, Northeast Kingdom for fine dining and use of fresh locally grown products, and Arepera Guacuco for Venezuelan cuisine.  For live music, the Silent Barn offers a venue for performers and music lovers.  On the other side of Bushwick off the JMZ line, lies a beloved grocery, Mr. Kiwi, which offers fresh juice and produce, organic and vegan choices, and many specialty items.  On the L side, is a comparable choice in Hana Natural, which offers many delicious fresh deli sandwiches in addition to their stock of organic, natural and specialty items.

The possibilities for the future of this neighborhood are far and wide.  Many investors have been buying up property in Bushwick and the surrounding neighborhoods due to the attraction for young professionals and students to live here.  Despite affordable rents, the area has witnessed a significant rise in the price per square foot over the past 3-5 years and that is only expected to continue.  In conjunction with properties being priced at wholesale and low interest rates, the neighborhood should continue to see a spike in sales especially with multifamily and commercial property.  Furthermore, there is a push for development in the area.  With vacant lots scattered throughout the neighborhood and major development companies catching on to Brooklyn’s development potential, the neighborhood should expect to see new construction and eventually condominium sites in the near future.