There are a lot of reasons why buying
real estate, especially a home that you use as a primary
residence, might be a good investment. The tax code provides
homeowners with some of the biggest tax breaks around. If
you use a
mortgage
to buy your home, you
leverage
your investment, putting up a little of your own money to
make a major purchase, and increasing your ownership share
of the property as you pay the loan off. Best of all, real
estate is an investment you can live in.
Since purchasing a home may also be
one of the biggest investments you’ll ever make, you
need to weigh the potential advantages against the potential
disadvantages:
Advantages
of owning
Disadvantages
of owning
You can deduct the
interest
on your mortgage and
your local property taxes from your tax return,
which can reduce your taxes and free up cash
for investing.
You
will probably owe property taxes.
You build
equity
as you pay off your mortgage,
increasing your share of the property's value.
If
you own a house, you will be responsible for
maintenance of the property, which can be a considerable
expense.
You may be able to borrow against your equity and
deduct the interest payments on the loan.
The
money you tie up in real estate will not be available
for investments, such as stocks, that may have
the potential to provide stronger growth.
If your property increases in value over time,
you may make a profit when you decide to sell.
And some or all of your profit may be exempt
from federal taxes.
You
run the risk that the property may decline in
value.
Owning a home has significant emotional and psychological
advantages.
Real
estate is one of the least
liquid asset
classes, which means it can be difficult to sell
quickly if you need cash in a hurry.
