Stocks or real estate?
If we just had some extra cash, now would be a great time to get into the stock market, right?” Actually, if you have some extra cash, now is the best time in five or more years to … buy a home. Thanks to the concept of “leveraging,” purchasing a home is by far the best long-term investment. Leveraging means putting down a small amount of money to earn a big return. Say you spend $10,000 to purchase a $250,000 home, and the house appreciates a modest 3 percent during the first year. That means after one year, the house would be worth $257,500 ” a gain of $7,500. Your annual return on your $10,000 investment would be 75 percent. If you put the same $10,000 in the stock market and post a similar 5 percent gain, you would only net a $500 return. And as a home owner, your savings continue to grow in two ways. Every year, a greater portion of your monthly mortgage payment goes to the principal, reducing the overall loan amount. Second, your home appreciates over time, making it one of the best financial investments. Don’t forget the important tax incentives. Owning a home is by far the biggest and best tax break for middle America. In most instances, all of the mortgage interest and property taxes you pay in a given year can be fully deducted from your gross income resulting in thousands of dollars of tax savings, especially in the early years of the mortgage when interest makes up most of the payment. Not only is homeownership a stepping stone to a future of financial security, it also helps to build neighborhoods and strengthen communities.
Current mortgage interest rates are extremely favorable for buyers. In fact, rates for 30-year, fixed-rate mortgages are near 30-year lows. No one can predict where rates will go; even those who follow the market for a living can’t predict if/when interest rates will bottom out. If they could, they would all be multi-millionaires. What we know is this – waiting to time the market is a dangerous and losing game. Home prices don’t necessarily move in unison with interest rates. So, if you decided to wait to purchase a home, and the price were to drop $10,000, you could still end up losing money. How? If interest rates go up by a half-a-point during the same period, the $10,000 savings on the price would be erased by the higher monthly payment you would be making over the life of the loan. In short, the smartest and safest time to buy is NOW. We know that interest rates are low today, that home prices are down, that there are plenty of homes on the market, and that sellers are willing to bargain. We know now is the time to buy.
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