6 Reasons Why Buying a House is a Good Investment

It’s no surprise that buying a house is the American Dream. It means not having to hear neighbors above you, being able to paint the walls whatever color you choose, and having a yard for entertaining. But buying a home is a big investment, and many wonder if it is a good investment. 

The truth is that for many, home ownership makes a lot of sense. If you’re financially prepared with a down payment and able to afford the costs that come with owning a home, it’s one of the best investments you can make. 

Once the upfront expenses of a down payment and closing costs are out of the way, owning a home comes with a number of benefits that can be financially beneficial.

As long as you are not moving every few years, your house should begin to increase in value over the next 7-10 years. On average, most homes appreciate at a rate of around 3.5% or 4% per year. According to the St. Louis Federal Reserve, the median home sales price in the area increased from $238,400 to $454,900 between 2012 and 2022 — nearly doubling in value over a decade.

Often, the key to buying a home that will be worth more in the future is to make a purchase in a desirable location. Traditionally, hot properties tend to be close to parks and schools. A recent study showed that homes located near a park or open spaces are valued between 8% to 20% higher than comparable homes.

While buying a house means paying taxes and mortgage interest that renters aren’t required to pay, if they itemize deductions, they can write some of those expenses off. 

Property Taxes

As a homeowner, you’ll need to pay Missouri or Illinois property taxes. You can, however, deduct up to $10,000 of property taxes as a married couple filing jointly, or $5,000 if single or married filing separately.

Mortgage Interest

Filing an itemized deduction of mortgage interest allows homeowners to lower their taxable income. The IRS’s most recent rules allow a deduction on the first $750,000 of indebtedness as a single filer or married couple filing jointly. Married couples filing separately have a deduction limit of $375,000 each. 

The key to writing off home ownership taxes is to make sure the money you’d save is greater than standard tax deductions. Your accountant will be able to tell you which route makes more sense financially.

Buying a home means being able to build equity as you pay down your mortgage. As long as your home retains a value worth more than your outstanding loan amount, you will be eligible to take out a line of credit or get a home equity loan using your home as collateral. Usually, lenders will allow you to borrow from the equity in your home once you’ve paid 20% of your home loan. This can be extremely beneficial for paying off high-interest credit cards, or for making renovations and repairs to your home that will increase its value.

While renting doesn’t require paying taxes or having to fix appliances when they break, every dollar spent on a property you don’t own is unrecoverable. When you invest in a house purchase, money toward your mortgage payment can end up back in your pocket when you sell – or go towards a down payment on your next purchase.

While landlords don’t typically allow renters to remove walls or replace flooring and countertops, homeowners can make whatever changes they desire. And in many cases, the upgrades to make living in the home more enjoyable end up being desirable to future buyers as well. 

According to the National Association of Realtors, renovations like finishing a basement can result in 86% return on investment, and installing new hardwood floors is likely to have a 100% return. In today’s real estate market, adding a home office and creating an open floor plan are also highly likely to increase a home’s value.

Retirees who once made an investment in a house purchase truly reap the rewards once they’ve paid off their mortgage. Borrowing against its equity is always a possibility if they choose to stay there, or they can downsize into a less expensive house or a condo with less maintenance, and pocket the profits. Long story short? Buying a house can bring great peace of mind in the future for those who invest in the right property. 

Maintaining a home comes with ongoing expenses, but it can be a great investment. If you’re curious whether buying a home is the best decision for you, realtors at Berkshire Hathaway HomeServices Select Properties would love to offer their expert advice. 

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