Posted by Arjun Dhingra
There are obvious benefits in home ownership in the Bay Area. Not least, you get somewhere to live. But there are a number of other upsides that are slightly or considerably less apparent, and they aren’t all about money. There are seven “hidden” benefits of owning a home in San Francisco that most renters may not yet be aware of.
- Owning Property in The Bay Area Is Just a Good Investment
The U.S. Census Bureau has a table of historical home values on its website that starts in 1940 and ends in 2000. It uses constant year-2000 dollars for all figures to account for inflation. The Bureau indicates that housing prices increased the fastest (43 percent) during the 1970s and slowest (8.2 percent) in the 1980s. The report shows that the median home price in 1940, adjusted for inflation, was $30,600. The same figure in 2000 was $119,600. While some will say that investing in stocks has a higher payoff, there are other considerations in the way of risk. Owning real estate in one of the world’s most sought after city, not to mention one of the most stable job markets is sure to serve you well over the long run. More recently, CoreLogic’s home price index showed a nationwide year-over-year change of +6.0 percent in August 2016. Not too shabby, considering the Bay Area was at or above this differential for most of this year.
- Ownership Gets Easier Over Time
In the Bay Area, buying a house often involves financial strain. You have to come up with a down payment and cope with unexpected homeownership costs. You may feel the pinch for a few years. But gradually things get easier for two reasons. First, mortgage payments won’t increase with a fixed mortgage. And as you establish your career, those payments become more affordable. Meanwhile, tenants get rent raises to go with their higher salaries. Also, paying your mortgage over time means you’re building equity each month. An asset you can sell or borrow against in the future.
- Tax Breaks in these crazy times!
Mortgage interest and certain closing costs are generally tax deductible (check with your CPA or tax preparer about your individual situation). You get most of this relief during those early years when you’re paying the bulk of your mortgage interest. Mortgage insurance and property taxes may also be deductible. That applies to your federal taxes, and many states allow similar deductions. Even better, when you sell your property, you can take up to $250,000 in profit, tax-free ($500,000 for couples filing jointly).
- Improve Your Credit Score
Buying a house can improve your credit score, especially if you don’t have a long credit history or many installment accounts. That’s because your mortgage –provided it’s managed well — helps drive up your credit score in three ways:
* Consistent payments show you’re a responsible borrower
* Credit bureaus often give more weight to a mortgage payment history than to revolving accounts like credit cards
* Few landlords report rental payments, so your mortgage gives you an extra account on your credit report
- Forced Savings: Wealth Accumulation
You can view the equity you build in your Bay Area home as you make payments every month as a type of saving. Unlike renters, you’ve no choice but to increase your net worth. The Stanford University Joint Center for Housing Studies confirms this. In fact, on of their studies showed that homeowners acquire 46 times as much net wealth as renters. For every $1,000 accumulated by non-homeowners, those who own a home acquire $46,000. Almost 60 percent of the wealth of Bay Area homeowners is in the form of home equity. Of course, renters are free to save too. However, for most folks who do not have portfolios of stocks, mutual funds and other investments, homeownership is the most reliable way to accumulate wealth.
To find out how you can qualify for home ownership, email me.