Here’s how owning a home can be a fantastic financial investment.
What is the true value of owning a home? There are three components to the value of homeownership, and today I’m sharing what they are and how to calculate them:
1. Appreciation. If you hold onto a home, it will appreciate in value. Let’s use an example of a $500,000 home and assume a 4% appreciation rate year over year, which is a conservative estimate. During the first year, your $500,000 home is worth $520,000, which means you gain $20,000 in appreciation.
2. The value of paying down principal. To calculate this, use the Place Mortgage Calculator app. You can download it on your iPhone or Android’s app store. Let’s assume you purchased a $500,000 home and put down 10%, leaving you with a mortgage amount of $450,000. If you have a 30-year mortgage at today’s rate of 6%, your first-year payment will mostly go towards interest. However, you will still reduce your principal by $5,526, and every year, your principal reduction will increase over time. If you decide to sell your house in the first year, you will have gained $20,000 from the home appreciation. Additionally, you will have paid down your mortgage by $5,526, which you will receive half of when you sell the house.
3. Tax savings. You get to write off a portion of the interest that you pay based on your tax rate. You can use the same app to calculate this. Assuming you’re a single person with a 24% tax rate, your tax savings would be $6,444 in year one.
Adding up the three ways you receive value from owning a home, you’ll save almost $32,000 in the first year of owning your home. This is a substantial amount of money! If you have any questions about how to calculate these three components or need help with your real estate goals, feel free to call or email me.
