Some time back, buying a home was always a great way to invest and it was the American dream to own your own home. Today, when you talk to many, especially the younger generations, they will tell you that renting is not a bad thing and that it leaves them free to explore or move from place to place and not committed to anything long term.
However, if a person really does their homework and looks into the price of renting vs. home ownership, there are still many good reasons to not just consider your home a place to live but rather an investment.
The housing market bubble bust did wipe out a lot of peoples equity when it crashed, however the market is turning around and many homeowners are starting to see positive equity once again and being able to sell their homes without having to come to the closing table with money. When selling a home with equity, the seller is entitled to avoid paying taxes on the gain (equity) that home as long as that residence was their principal home. Many may argue that a tax-free savings account is a way to shield paying taxes on an owners money; however, I have never seen or been shown one that can gain a positive sum in some cases on a short investment period (situations vary).
Forced Savings Plan
If you are like most people, once that dollar hits your pocket, you are on your way to the mall to spend it. However, if you own a house, every month you will get a bill called a mortgage payment that will need to be paid. This payment unlike most is creating equity in your pocket by paying down the balance and creating a cushion of savings in a tangible item. For the first time owner, balancing a new mortgage payment along with putting away for savings will be tough to do, so consider your home ownership another avenue of a savings account.
Hotter Housing Markets
City vs Suburbs vs rural housing areas. Each of these areas will have a different average yearly gain, but a gain is a gain. If you are a rural home owner, you may need to hold onto your home longer to see a noticeable gain when going to sell, but overall, over time, each market will see it’s time when the gains are stronger, but on average across the country, an average gain is roughly 5.4% annually.
Home ownership is not for everyone, but for those looking for an automatic savings account or a way to avoid taxes on gains, home ownership still proves to be a wise investment.