The Best Investment

• As a typically general rule, homes appreciate about 4 or 5 percent a year. Some years will be more, some less. The figure will differ depending on neighborhood and region.
• 5% may not seem like that much at first. Stocks might appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds.

But take a second look…

• Let’s assume that you bought a $200,000 house, you did not pay cash for the home. You got a mortgage as well. Suppose you put as much as 20% down – an investment of $40,000.
• At an appreciation rate of 5% per year, a $200,000 home would increase in value $10,000 during the first year. Therefore, you earned $10,000 with an investment of $40,000. Your yearly “return on investment” would be an amazing 25%.
• Obviously, you are making mortgage payments and paying property taxes, accompanied with several other costs. Nevertheless, because the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your home purchase.

Income Tax Savings

• Due to income tax deductions, the government is subsidizing your purchase of a home. Each and every interest and property tax you pay in a given year can be deducted from your gross income to reduce your taxable income.
• For instance, imagine that your initial loan balance is $150,000 with an interest rate of 8%. During the first year you would pay $9969.27 in interest. When your first payment is January 1st, your taxable income would be as much as $10,000 less – because of the IRS interest rate deduction.
• Property taxes can be deducted, too. No matter what property taxes you pay in a given year may also be deducted from your gross income, decreasing your tax obligation.

Let’s assume that you have a sizeable savings account and have gathered $2,000 of your savings for a new TV. You go to the store and discover that the TV you want to buy and the total comes to right at $2,000. You are about to pay cash when you see that the store provides 0% financing for the period of 18 months. If you decide to benefit from the 0% offer (assuming there’s not a deal for paying cash), are you taking on debt although you have enough cash to pay it off at any moment?

I’m aware of the fact that there are all kinds of “what if…” scenarios that could go along with the presented situation. Nevertheless, let’s just assume that you are disciplined enough and would not charge the TV and then go buy something else for your $2,000. What is more, bear in mind that you are not spending money you do not have because we have assumed that you saved up for the TV. To put it simply, you are not purchasing now and paying later.
In my personal opinion, although you are taking on debt, I see nothing wrong with taking advantage of the 0% offer. I think that it really is not a debt if you posses the money to pay it off any time you want but you have decided not to do so. I perceive it as a method for smart people to use debt for their own benefit even though the benefit is relatively small (approximately $91 if you get a 3% interest rate on your savings for a period of 18 months and less if you have to make monthly payments since you will be drawing down your $2,000 over the 18 month period).