If you’re thinking about buying a home, good, it’s a sound financial decision and it’s the bedrock by which most Americans in America have created wealth for themselves and their families. Here are the four pillars of owning real estate and how they all work in tandem with each other to make you wealthier as a homeowner…
Generally, houses appreciate 1 to 2% per year and have for the last forty-plus years in America. There will be peaks and valleys, and there will be times when that appreciation is not there, but by-and-large homes appreciate over the course of time.
If the property is a rental- cash flow is a driver of wealth. If the property cash flows where you can make money each month, this is going to be a good thing for you as it relates to having more income and also having the velocity of the 3rd element which is the loan pay down. The loan pa down builds your equity and you’re increasing your net worth by tiny amounts each month. So you’re paying down the loan while at the same time the house is appreciating in value thereby making you wealthier. This is a phenomenon that occurs happens for a primary home. secondary home coma or a debt-serviced rental property (meaning financed with a mortgage loan).
The last element is a tax break. You get to write off all of your mortgage interest and all of your property taxes. If you factor in the appreciation element, the loan paydown, and the cash flow the property could generate, as well as the fact that the property also gives you a benefit, comes tax time with Uncle Sam, you have a recipe for long-term wealth creation. Own more than one property? The benefits here are doubled, on three properties the benefits are tripled, and so on and so on. Granted there are things you’ll need to budget for i.e. having enough income to sustain a mortgage payment and of course, being able to buy a property in the first place with a healthy down payment.
You can work up a financing arrangement with the seller where you can do secondary or seller-carry financing. If the seller is willing to pay points for you on the interest rate which will make the mortgage payment lower which will make the property cash flow more adding in the benefit of the appreciation and the loan pay down and your situation could augment even further. The point is here is real estate with these 4 elements on a property held over the course of time or multiple properties held over the course of time 5 to 7 years or longer almost guaranteed will make you wealthier and will give you a financial position to leverage the equity by cash-out refinancing for other purposes, or selling such property to acquire new property or even doing a 1031 tax-deferred exchange allowing you to roll the gain from one property to acquire another.
If you’re looking to buy a primary home or a rental property and need some mortgage guidance starts with a complimentary mortgage rate quote.
