Buying a home is a huge financial commitment, and not something to rush into without careful consideration.
But while putting together a down payment and then servicing a mortgage may seem like a major drain on your finances, in the longer term buying a home is actually one of the best investments you can make.
Here are five reasons why.
The ‘Forced Savings’ Effect
When you’re putting money away into a savings account as an investment, it’s tempting to skip a month or two if you’re short of cash. While this offers useful flexibility, in truth it can be a little too convenient. You can easily wind up with much less money set aside than you’d planned, and with not much to show for it.
With a mortgage, you don’t have the option of missing payments without serious repercussions. This adds discipline to your investment activities, with every mortgage payment storing up wealth for your future.
With regular savings or other low-interest investments, a strong rise in inflation can easily wipe out any gains you’ve made, potentially even reducing the value of your wealth in real terms.
While this effect could also in theory apply to your home, in reality real estate prices tend to match or outpace general price rises over the long term. If you want to protect your wealth from inflation, buying a home is usually the best way by far.
Less Expensive Than Renting
All else being equal, homeownership costs less each month than renting a similar type of property. Rental payments need to cover the landlord’s costs such as mortgage and maintenance, but also usually include an element of profit.
As a homeowner, making a profit isn’t an issue. You’ll have roughly the same maintenance costs, and any left-over difference compared to a rent payment can be set aside as savings.
Even if your current mortgage is a little more costly than renting, over the years your repayments will stay largely fixed, at least without wide swings in interest rates. However, rents will continue to rise in line with real estate inflation.
As the years pass, your mortgage will become more and more affordable compared to typical rents. And of course, once your mortgage is cleared you’ll own your real estate asset in full with no further payments required.
Lastly, there are often considerable tax benefits to be gained from owning your home. The details vary from jurisdiction to jurisdiction, but at minimum you can expect to treat mortgage interest as a tax-deductible expense.
In most cases, there’s also a generous tax allowance on real estate sales compared to most other investment profits. Check with a local expert to be sure, but homeowners generally receive more tax advantages than renters.
Owning a home comes with responsibilities and risks, but for these five reasons and more, over the long term it’s a much better use of your money than renting a home while trying to invest at the same time.