If you’re currently a renter, you know there are positives and negatives to renting. You’ve probably heard about the American Dream of homeownership and how everyone wants it.
You’ve also probably heard about the economy and how that dream has turned to a nightmare for a lot of people. It’s a scary thought, and you may wonder why anyone would want to buy home these days.
The truth is, “these days” offer the best opportunity in recent years for renters to become home owners. In many areas, home prices are lower than they have been in ten years. Now, prices will go up and down over time, but the most important indicator of how much you’ll ultimately pay for a home is the interest rate at which your loan is financed. Interest rates are lower now than they have been since the 1950s!
You’ll need good credit and a little money set aside, but there are many financing and down payment assistance programs available through lending institutions, the federal government, your county and even some cities. A good real estate professional can get you started and introduce you to the people who will help you through the process.
Why would you want to own, instead of rent? Well there are the obvious reasons, such as being able to do what you want with your home (as the law allows, of course) and not having to report to someone else if you want to change something, or have a friend move in, or get a pet. There are also a number of financial benefits. Aside from the fact that in the long term, real estate generally appreciates in value, it will save you money on your taxes.
“WAIT!” you say, “people are losing their shirts on their homes and getting foreclosed left and right!” Yes, this is true. But many of the foreclosures and short sales are the end result of purchases made during the housing boom of 2004-2006 when prices were artificially inflated. There was also a monster called “sub-prime lending” out there that has since been slain. The good news for you is that because of all the distressed properties out there we now have the low prices that we do, and you have a great opportunity to pick up your first home!
The key with real estate appreciation is the over time part. For example, my parents bought their home 30 years ago in a SoCal suburb for $105,000. Today, even at our historically low prices, it is worth about $320,000. That’s a 200% increase! There are few other investments that perform that well. And you certainly can’t live in them! But you’re looking for your first home and you probably won’t live in it for 30 years, right? Good point.
Let’s use a couple of my home purchases as examples. When I was in college at UC San Diego I bought a home (a serious fixer) for $175,000 and put $2000 and a lot of elbow grease into it. I lived in it for almost exactly two years and sold it for $255,000. I paid no more per month (including my property taxes and insurance) than many of my friends were paying for much smaller apartments, and I made a profit of $78,000!
In 2001, I bought a home for $209,000 and sold it in 2007 after prices had started to decline again, but just before the big crash, for $340,000. $130,000 in my pocket! What have you netted for the rent you’ve been paying for the past six years? Oh, that’s right, YOU GAVE IT TO YOUR LANDLORD!
How about taxes? You have a job, right? You pay taxes? You probably pay a lot of taxes. Did you know that you can deduct the property taxes you pay on your home, as well as the portion of your payment that is your mortgage interest, from your income taxes? This means there’s more money in your paycheck every two weeks and less that gets sent to Uncle Sam!
Of course, no investment is guaranteed. There is always risk involved. And, it’s a good idea to use a knowledgable tax preparer if you’re going to make deductions on your income tax.
But if you think you may be ready to find out about buying a home, it’s always best to consult a Realtor. Give me a call and we can talk about the questions you should ask and the information you need to make the right decisions about buying your first home. I’ll buy the coffee!