Why Do People Buy Homes Rather Than Just Rent?

WHY DO PEOPLE BUY HOMES RATHER THAN JUST RENT?

During these uncertain financial times it is important for you to consider whether you should become a first-time home (or cooperative or condominium apartment) buyer.  Below are a number of reasons most people give for buying:

Appreciation in Value:  Although we appear to be in the midst of a down-cycle, over the years real estate has been fairly consistent in appreciating.  Homes have been considered a hedge against inflation over the years.  If history is any judge buyers can look forward to an up-cycle and the value of your investment increasing over the years.

Tax Benefits:   The real estate taxes on your residence (as well as a vacation home) will most likely be fully tax-deductible.  Mortgage interest payments are also fully deductible and help make home ownership a tax shelter.  Please note that interest payments on a fixed mortgage are greater at the beginning of ownership and therefore the deduction is greatest during the earlier years.

Capital Gain Benefit:  So long as you have lived in your home for two of the past five years you can exclude $250,000.00 ($500,000.00 for a married couple) of profit from capital gains.  Any profit greater than the above exclusion shall be taxed as a Capital Asset as long as you owned your home for more than one year.  Capital Assets receive preferential tax treatment.  As of this time, the tax on a capital gain is levied at 15% of such gain, far lower, in most instances, from tax on ordinary income.

Pride in the Ownership of Your Own House:  This is probably the number one reason why people buy a first home.  The feeling that you have full control on what you do in your own house from decoration, etc.  It also gives you and your family a sense of security and stability.

Accumulation of Equity:  As you make payments on your mortgage, the balance goes down and your equity increases.  While most of the initial payments on a fixed loan consist of interest on the mortgage, there is also some reduction of principal.  Principal payments reduce the amount of the loan and therefore increase the amount you will receive on a sale of the property.

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