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Owning real estate has benefits over renting, such as tax deductions, no capital gains taxes and having fixed monthly payments regardless of inflation. These are 7 important benefits of owning real estate.
The question of whether or not it is better to own or rent a property is a valid concern for many renters looking to buy, or many homeowners who may be wondering if they made the right choice when buying their property. We believe that ultimately, owning real estate has benefits that outweigh renting.
In this article we list seven important benefits of buying real estate versus renting.
Although renters also have the ability to enjoy a sense of community, neighborhoods with homeowners benefit from a different sense of community that renters do not. Homeowners can mutually benefit from keeping their neighborhoods clean, safe and friendly for their growing families. In addition, by keeping their homes updated and maintaining curb appeal increases the value of everyone's property within that neighborhood as a result.
Home owners have the ability to deduct the property taxes andmortgage interest paid on their mortgages from their AGI (Adjusted Gross Income). This substantially reduces the amount of income taxes a homeowner has to pay when compared to a renter with the same income.
Considering this example, you will be able to deduct $19,000 per year from your AGI (Adjusted Gross Income), thereby eliminating the need to pay taxes on $19,000 of your annual income.
When you sell your home and make a profit, you will avoid paying taxes on whatever amount you have gained up to $250,000 if you are a single taxpayer, or up to $500,000 if you are married filing jointly.
Under the Taxpayer Relief Act of 1997, if you are married, you will not have to pay any income or capital gains taxes on that $400,000. If you are single, you will only have to pay a capital gains tax on $150,000.
As a renter, unless you are able to secure a multi-year lease that keeps your monthly rent expense fixed, you are very likely to experience an increase in your monthly rent every single year.
As a homeowner, on the other hand, you have the option to fix your monthly payments for up to 30 years. This works especially well in guarding your monthly housing expense from inflationary pressures.
This payment will not change for the life of the loan (30 years), where as a renter will experience an increase in monthly rent every single year at their landlords' discretion.
Credit scores and credit worthiness are based on the debt and payment history of your borrowing activities. If you have credit cards and make more than the minimum payments consistently and on time, you will notice that your creditors will increase your credit limits automatically. This is because they feel more secure that you have the ability to repay what you borrow.
When you take on debt and make consistent, timely payments for larger ticket items such as cars and mortgages, your credit rating will greatly improve. As a result, you will see your credit scores rise while ensuring future lenders that you have the ability to maintain and repay higher loan amounts. The qualification and approval processes of any future borrowing needs will become much easier than for a person who has limited credit history with lower credit limits.
Many renters already know that landlords have many rules about what you cannot do within your rented home or apartment, such as not being able to paint the walls, affix furniture or shelving to the walls and whether or not you can install satellite television on the roof. As a homeowner, you will avoid all of these limitations, unless you are buying a condo or a townhome that limits major structural changes.
Homeowners can change their property as they wish, so long as they adhere to zoning laws and city planning. Perhaps you want to install solar panels, build a guesthouse, replace carpets with hardwood or change your roof to Spanish tiles, as a homeowner you are free to make these changes, whereas a renter is unable to or has to ask permission from the landlord.
Aside from the occasional real estate price correction, like the one many real estate markets experienced during the years of 2007-2009, the value of your property will increase. A renter cannot benefit from the increase in property value because they do not have ownership interest.
As a homeowner, you will see a rise in property value, considering all else is equal, thereby increasing your assets. This increase in value will give you the ability to refinance or take out a home equity line of credit (HELOC) in the future if you wish. If you choose to leave your equity alone until you sell, you will have the ability to keep any profit gained from the sale, untaxed, up to $250,000 if single and $500,000 if married.
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