Top 5 Reasons To Buy A Home in 2016

Are you thinking about buying a home in 2016? I want to give you the top 5 reasons to buy a home in 2016. And I am going to give you the smart financial reasons. Reasons why it makes the most sense NOT to rent and to actually buy a home or condo. Of course there are emotional reasons- everyone wants to buy that perfect, new home in the perfect neighborhood. But let’s really dig in to the financial reasons, especially since rent round here in Costa Mesa and Orange County is so, so expensive right now. Here we go:

 

1. You Are Paying for Housing Whether You Rent or Own

There are times to rent- right after college, if you have moved to a new area or to a new jobs, or even after you just sold a property. But once you get your feet planted on the ground, you are truly only throwing money down the drain when you rent. Do this for me – write a check out to your own name, for your typical rental amount, and go put it in your garbage disposal. Turn it on – does it feel like you just lost money? It should, because that check could have been creating equity in a home for you. I know you pros out there get the concept, but for those who are not acquainted with the concept of creating equity, each time you write a check to your mortgage company, a small piece of that reduces the principal balance of the mortgage. Over time, that piece grows larger and larger. In 30 years (or sooner), you will own that home free and clear of the bank and the mortgage. There are really, really good ways to pay down the principal much sooner than 30 years too, even if you have a 30 year loan.

2. Housing is Typically the One Leveraged Investment Available

Creating leverage is one of the smartest things you can do in life. Financially, you can only typically get leverage when you already have an asset or equity in a property. However, the U.S. is great with promoting homeownership and subsidizes banks to create programs for borrowers. Programs like the FHA first time buyer program allow a buyer to put only 3.5% down, and that 3.5% can actually be provided by the seller!! That means you don’t have to have all the savings to have the opportunity to buy a home or condo. Leverage is huge. You don’t have to have the typical 20% down when purchasing, but it does help to reduce your monthly costs. Use leverage when buying a home, it will help with your taxes as the end of the year approaches too.

3. Owning is usually a form of “forced savings”

Like a lot of other people, when the recession hit between 2007-2012, I had to be careful with my spending and my savings. I was in real estate after all, and a lot of people were not buying homes. Like a lot of other people, I could not save as much as I hoped to each month. What I did have however, was the fact that I had to keep paying my mortgage each month. That essentially became a type of forced savings for me, because over that 5 year period, I was able to create about $20,000 in equity, all while paying my mortgage. Just like if I had rent, but it was a positive payment that has helped in the long run. As I already said, you have to pay rent or mortgage, so you might as well be paying something that is not like throwing money down the drain.

4. There Are Substantial Tax Benefits to Owning

As I already mentioned, there are significant benefits to saving money on taxes if you own a home. First off, you get to deduct all the mortgage interest off of your U.S. taxes that you owe Uncle Sam. That is typically the leading tax deduction for most tax payers in the U.S. Did you know that if you had a mortgage of approximately $500,000, that your first year write off of mortgage interest would be about $19,000???? That’s huge!! That is money that will come back into your pocket in a big way. Also, you get to write off your Orange County property taxes. Most properties around Orange County have property taxes of about 1% to 1.2% depending on the city. Costa Mesa is currently about 1.125% – if you bought a home of $500,000, your property taxes would be $5625 for the year, and that whole number can also be reduced from your US taxes. Huge!! The total savings in my example is $24,625 which is a great way to save money and not rent any longer.

5. Owning a Home is a Hedge Against Inflation

You will realize quickly, especially around Costa Mesa, that if you rent for a long time, your rent will rise over time. Just like eggs, milk, gasoline, and other products, rent will rise with the economy and with inflation. It rarely ever goes down! Looking back in our logs, rent was about $2400 a month for an average 3 bedroom home in 2004. That same 3 bedroom home would rent for $3000 today and there would be a line out the door to rent it. Buying a similar home in 2004 would not only have been a hedge against all that inflation, it would have given you approximately $150,000 in equity at this point in time. Nice savings, huh! I’ve got bad news for you too – if you like living in Orange County, and especially in Costa Mesa, rents will continue to rise over the next 10 years. There are not enough housing units here locally, and they are building some, but not enough to push down rental demand. Rental prices will only increase.

Have I give you enough good, sound financial reasons to consider buying in 2016? What did you think of my Top 5 Reasons To Buy A Home in 2016? Home buying can be a bit confusing when you first start, but trust me – I make it easy so the process is easy and straightforward. Watch out for our next blog post about how the process works.

 

If you are looking in Costa Mesa or around Orange County, I would love to help you create a plan to buy your next home!! I love creating strategies for people, even if it is a little ways off. Call or text me @ (714) 743-9882!! I would love to help you figure it out! Colin Delaney (email).