In
Real Estate: Today’s Golden Opportunity we compared the
current housing market to the market for gold about a decade ago. Some commented
on the fact that you can’t compare gold to real estate as an investment as gold
is a very liquid asset and it would take more time and effort to sell a house.
We were not trying to make the case for real estate vs. gold as an investment in
our blog. We were just showing that all investments go through cycles and that
the best time to buy any investment may be when everyone is saying not to.
However, since the subject of comparing real estate to other investments has
come up, let’s take a closer look. There are two major advantages to investing
in a home of your own rather than another option:
You Can’t Live in Your IRA
When you buy your own home you are not taking available dollars away from
another investment. You are replacing one housing expense (rent) which has no
potential for a return on investment with another (mortgage payment) that does
give you an opportunity for a return. We realize that there has been
research showing that over the last 30 years renting has been
less expensive than owning. That research also says that if you invested the
entire difference between the rent payment and mortgage payment you may have
done better financially. There are two challenges with this conclusion:
- Today, in the vast majority of the country, renting is actually more
expensive than owning a home.
- History has proven that tenants DO NOT invest the difference in their rent
and mortgage payments.
Today,studies show that owning a home is no more
expensive than renting a home. However, even if this wasn’t the case, history
shows that owning a home creates greater wealth.
Paying a mortgage creates what financial experts call ‘forced
savings’.
The Joint Center for Housing Studies at
Harvard
University released a study last year titled
America’s Rental Housing: Meeting Challenges, Building on
Opportunities. In the study, they actually quantified the difference in
family wealth between renters and homeowners:
“Renters have only a fraction of the net wealth of owners. Near the
peak of the housing bubble in 2007, the median net wealth of homeowners was
$234,600—about 46 times the $5,100 median for renters. Even if
homeowner wealth fell back to 1995 levels, it would still be 27.5 times the
median for renters.”
There Are Tremendous Tax Advantages to Investing in a Home
There is no doubt that selling an investment such as gold is easier than
selling your home. However, this liquidity comes at a price. The price is called
capital gains. That is the tax you pay on any financial gain you receive from
the investment. This tax doesn’t apply the same way when you sell your primary
residence:
Theresa Palagonia, a CPA and the Accounting Manager for the firm
G.S. Garritano & Associates,
was good enough to explain the Home Sale Exclusion Rules:
“You may qualify to exclude from your income all or part of any gain from
the sale of your main home. Maximum Exclusion You can exclude up to $250,000 of the gain on the sale of your main home
if all of the following are true:
- You meet the ownership test.
- You meet the use test.
- During the 2 year period ending on the date of the sale, you did not
exclude gain from the sale of another home.
If you and another person owned the home jointly but file separate
returns, each of you can exclude up to $250,000 of gain from the sale of your
interest in the home if each of you meets the three conditions listed
above.
You may be able to exclude up to $500,000 of the gain on the sale of your
main home if you are married and file a joint return and meet the requirements.
(Special rules apply for joint returns.)
Ownership and Use Tests
During the 5 year period ending on the date of the sale, you must
have:
- Owned the home for at least 2 years, and
- Lived in the home as your main home for at least 2 years
Certain exceptions exist in which you may qualify for the exclusion
without satisfying the tests listed.”
Bottom Line
Every investment has pros and cons. That is why there is such an assortment
of great opportunities. Real Estate has been, is and always will be one of those
opportunities.
If you are thinking of buying a home in or around Bristol County MA or RI, please visit www.DistinctiveHomes-NE.comfor a free list of homes for sale in Westport MA and surrounding towns.
Would you like to receive a current market update of your specfic area? Contact me with your request.
If you are thinking of selling your home contact me for a FREE Current Market Analysis and to learn about our Market Plan to get your home SOLD!
We work with one going in mind, YOURS!
Noemi Cardoso
Local Office. Local Agents. Local Knowledge.
William Raveis Real Estate
911 Main Rd - Westport MA 02790
Cell: 508-558-1945
www.DistinctiveHomes-NE.com
noemi@DistinctiveHomes-NE.com
If you follow this blog, you know that we have often posted that we believe young adults between the ages of 18-34 will be a major percentage of all buyers purchasing a home in 2013. Some believe we are overestimating the millennials’ belief in homeownership. However, a new study by Trulia reveals we may be dead on. Regarding young adults, the study reports:
