Property investment can be a fantastic way to build wealth, protect your assets, and secure your future financially. Although we can’t deny that buying a house is a huge financial commitment and doesn’t come without its fair share of stresses, it can also be one of the greatest investment decisions you make. Here, we take a look at how buying property can work for you in terms of boosting your net worth and securing a sound investment for the future.
Increasing Your Net Worth
Research has shown that a homeowner has a far higher net worth than a person who rents property. This could be due to something called ‘forced savings’, where an individual is, in effect, forced to pay for a large purchase to which they are committed.
With home ownership, a mortgagee is obliged to save a certain amount of money from their income each month to make their mortgage payment. In return, they increase their home equity and their net worth. This is not the case for a person renting a property; their payments increase their landlord’s net worth and they do not build equity or assets.
The Tax Benefits of Owning a Home
There are also a number of tax benefits associated with home ownership. The first of these is mortgage interest deductions. For most people, their mortgage payment is split into two parts. One part of the payment reduces the principal amount owed on the property. The other part covers the interest – this is the part that is tax deductible.
To qualify for this tax benefit, you will need to fill out Form 1040 Schedule A, which you can obtain from your mortgage lender. Enter the amount you paid as interest the previous year and itemize your deductions for tax returns.
Other deductibles to enter on your Form include city or real estate taxes, qualified moving expenses, and some of the interest on other loans such as home equity loans and home improvement loans.
There are two types of mortgage points, origination points and discount points. Each point represents 1% of your total mortgage. Origination points are non-deductible; these are the processing fees that you pay to the borrower when you take out your mortgage. Discount points, however, are tax deductible. These are the mortgage points which enable you to obtain discounted interest rates on your mortgage.
Other Advantages to Property Investment
When you buy a property for investment purposes, you can borrow the money from a lender by way of a mortgage. With stocks and bonds, this may not be the case. Further, your cash savings in the bank may not offer you the best returns due to inflation.
Another advantage of buying property is that as more and more of your mortgage is paid, your equity increases. When you reach the end of your mortgage term and the principal is paid off, you are debt free. You now own a considerable asset and chances are it will continue to appreciate in value. As always, though, this appreciation depends on various circumstances such as current market conditions.
Further, you can find that your house value also rises when inflation hits and prices increase. A fixed rate mortgage means future payments will be paid in a currency that has depreciated in value.
Buying a house can be much more than establishing a home for you and your family. It can be a great way to diversify your investment portfolio, secure your money for the long term, and protect you against dollar debasement. Give us a call to talk more about the financial benefits of investing in real estate – we are the team that performs for you!