Build Your Net Worth - Five Reason Real Estate Makes Sense To Buy and Hold
by Dan Wolf
on Thursday, May 17th, 2012 at 10:50am.
Real Estate has been at the cornerstone of most of the wealth in the United States, if not the entire world. This is completely true of home ownership in Anchorage, Alaska! If you study any traditional wealthy family, you will undoubtedly find serious real estate holdings at the core of their wealth.
I admit that real estate can be cyclical, just like any other investments. There can be a knack to "when to buy and when to sell", but the nice thing about real estate is it is so flexible and there are always multiple options of steps you can take if you are going through a down or soft market. I won't go into that right now and will talk about that more at a later time.
There are at least five major reason's that real estate makes sense to own:
Appreciation - Year in and year out, over the long haul with very few exceptions if you buy real estate it will end up being worth more than when you purchased it. A buy and hold strategy makes excellent sense for long term appreciation. I've heard experts estimate overall appreciation in the 4 - 6 percent per year after adjusting for lean years such as the occasional lean spots in the economy we've been through in the past 30 years.
Multiple Tax Benefits - The United States government figured out long ago that encouraging people to buy property was good for the overall economy in many ways. Consider that homeowners tend to be more stable, they buy more home commodities such as lawn mowers and appliances and they often employ worker such as maintenance people and trades people putting money back into the economy. Therefore, real estate owners are allowed to deduct the interest they pay on their real estate loans as well as thereal estate taxes they pay. Real estate is a great tax shelter! There are other tax benefits such as not claiming the gain on your primary residence you may get through appreciation and a smaller tax on your gain from investment real estate called Capitol Gains tax.
Mortgage Reduction - The fact that you can easily mortgage real estate is no small advantage. For instance, you can't get a loan on stocks and bonds you buy - those are cash transactions. There are some countries where everyone pays cash to buy real estate which greatly limits the number of individual property owners. The concept of mortgage reduction is simple. Unlike rent or lease payments which stay the same or increase, real estate mortgage reduce in size every time you make a payment! Keep making your payment long enough and you'll end up with a "free and clear" property!
Income Potential - If the real estate is a house or condo, you can opt to move out of it and rent it. Many people have their loans paid down and actually derive a positive income on their rental properties. Large rental properties are priced based on the amount of positive cash flow they generate meaning the property owners make passive income they can live on based on their ownership of the property. The concept is that you own it and someone else pays your loan off through the rent they pay, increasing your tax benifits and growing your personal net worth!
Pride of Ownership - What a concept! You can live in the propertyand enjoy the benefits afforded home ownership. If you want to paint it - you can without asking permission of a landlord. You can improve the property through remodeling and may increase it's value by improving it. You can't do that with stocks and bonds which rise and fall in the economy. Most home owners have an over better sense of worth and general peace of mind because they own their own home.
There are other benefits for sure, but my point is obvious. Real Estate is a very flexible commodity. Those who choose to can increase their net worth substantially simply by purchasing a piece of property, say a home, and keeping it for a long time!