Homeownership has always been considered a piece of the American dream. And there are a number of reasons why, beyond the picture-perfect vision of a yard with kids playing and a dog on the front stoop.
Homeownership is part of the American dream because the other part of that dream is the idea of success. And homeownership, from a financial standpoint, represents one element of success — which means it’s a good investment.
Of course, the real estate market, like any market, will experience ups and downs. But, from a long-term perspective, owning real estate comes with more financial benefits than drawbacks. While purchasing a home versus renting a home often comes with more upfront costs, in the long run, it realizes a greater return.
Here are a few reasons why homeownership is viewed as a good investment.
It is a wealth-building opportunity. According to data released by the Federal Reserve, the average net worth of homeowners is 40x greater than that of renters. Since real estate assets generally gain value over time, homeowners realize gains in their net worth in a way renters don’t have an opportunity to. Net worth is an important variable as people look ahead to or prepare for retirement, and homeownership is one way to give it a boost.
It diversifies assets. While investing in the stock market comes with its own risks and rewards, investing in real estate tends to diversify and balance an investment portfolio. Financial experts suggest diversification as a way to balance risk and they often suggest investing in real estate as well as stocks and bonds in order to promote that diversification. Real estate, as it turns out, is the only asset in the mix that is considered a low risk with a potential for a significant return, over time.
It benefits from appreciation. With time, real estate assets appreciate in value, which is to say they increase. An increase in value equates to an increase in equity which then equates to an increased net worth. When it comes to homeownership, the benefits seem to cascade into one another. As with any other asset, real estate can go through periods of depreciation, but, generally speaking and historically, real estate assets experience reliable appreciation over the long haul.
It comes with tax benefits. Homeowners are able to deduct mortgage interest on their tax returns, which reduces their taxable income. The Tax Cuts and Jobs Act, signed in 2017, allows for interest deductions on mortgages up to $750,000. And since the average new mortgage in the U.S. is well below that threshold, it stands to reason that many homeowners would realize that benefit.
It comes with predictability. With a fixed-rate mortgage, homeowners know the exact amount they will need to pay every month for housing. As a renter, even with a rental agreement — and especially in Arizona’s sometimes-wild housing market — rents can increase with little warning or properties can be sold unexpectedly. Although homeownership sometimes involves unexpected maintenance expenses, with a fixed-rate mortgage, the monthly payment is never a surprise.
If you’re considering a move, the team at Halpern Residential is ready to help. We keep an eye on market trends so you don’t have to. Moving is an exciting time of transition, and we’re ready to help you with it. Contact us today so we can learn more about how we can support your needs.
Author: Trevor H. Halpern, J.D. is the #1 independent agent at Phoenix-based North&Co. and the CEO of Halpern Residential. As a Phoenix native, Halpern’s deep knowledge of both people and property has allowed him to create client success in all areas of town.