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Why house purchase is a good investment

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.