Welcome to the 2^nd half of my August Real Estate message regarding Buying a Home by Fall, so you can start building equity and stop paying rent. But Ross, what is equity and why do I want it?

An easy way to look at equity is changing the name to “savings account” and I bet that helps make it a bit more straightforward. So right now, every month when you pay your rent, you send a check for whatever amount to someone who is putting that money into their savings account. But, when you pay a mortgage payment, you are essentially putting money into a bank account for you to get back down the road. I tell all my buyers, consider your principal payment, which is the amount you pay each month to reduce the amount of your mortgage, like putting money into a savings account that you’ll potentially get back. The interest is the amount of money charged by the bank to cover the cost of having a mortgage, basically a bank is a business, and this is one way they make money.

Yeah, paying interest sucks because you don’t have to pay that to a landlord, however there is something significant to consider. Well actually a couple of things to consider:

• If your rent is $1,500 a month right now, you can get a mortgage where your combined principal and interest are less than that, so you’re still paying less overall in mortgage payments than you were in rent.
• Houses appreciate, and no I don’t mean they appreciate you living there; the value appreciates aka increases over time.

“Wait so unlike a car that automatically is worth less the minute I drive it off the lot, a house isn’t like that?” First, if you’re a car salesman and have different information please correct me because that’s the belief I was raised on and I know nothing about car values.

Second, yes in general, houses will appreciate and increase in value over the time that you own the home. Your apartment or home you’re renting may also increase in value, but you don’t own it, so you don’t ever get to recognize that increase. With a house, the value increases over time based on market economics. As we all know inflation exists and that means things cost more year over year, whether that’s gas, groceries, entertainment, and yes houses. But there are other factors that come into play regarding the increased value of a home and some of these include supply & demand, improvements made, & updates to neighborhood/city.

If you make good home improvements, or your municipality makes improvements to the area, these both can cause home values to increase. But with basic supply and demand, home values also increase, why though? Well as population increases occur, or more people move to a region, the demand for housing goes up, and when this happens people pay more to ensure they get a home. Regardless of the reason, it is very common to see the value of a home increase after owning it for several years. The kicker to this is you can’t neglect or damage a home and hope it increases in value, and you can’t buy something in one month and hope to sell it one month later for a profit unless you make significant improvements to the home yourself, and even then, there is no guarantee.

“Okay, so my house is a savings account and the principal paid is paying off the mortgage and essentially increasing the savings account. Then when the mortgage is paid off, I’m sitting there with a building that represents cash in a bank account; I get it now, that’s easy to understand. But are there other benefits to building equity and eliminating my rent expense each month?”

Yes, there are, and some of these include the power to borrow against the home using it as collateral and tax benefits. As you pay off the mortgage, some financial institutions are willing to use the house as collateral and offer you loans or second mortgages for you to finance things like home repairs, the purchase of a vacation home, and maybe even college payments for children. As a realtor I can tell you I’m not an expert in these areas and will advise you to consult your local lender. Additionally, some states allow you to deduct interest paid against a mortgage as part of your annual tax payments, which is nice. But again, I need to tell you to consult a tax professional for your state to obtain further details and if it’s allowed.

But there is still one benefit that I have not listed that I believe is the most significant, and it’s my favorite benefit….. Price of Ownership!

For me, the past 8 years as a homeowner have been truly amazing. Yes, it comes with stress of having to repair things and do some work, but I get to do that work. I am very grateful that my wife and I are fortunate to live in the home we bought and get to wake up every day with a roof over our heads. I do not take that for granted, knowing there are plenty of people in the world without a home. I don’t look at cutting the lawn, shoveling snow, or making household repairs as a negative, I view them as a positive. I’m very proud to call myself a homeowner and I carry that each day with an air of gratitude. My wife and I work hard to pay our mortgage and devote time to maintaining and improving our home and we get to call it “ours” which is truly a gift and wonderful feeling.

I have paid rent in several places in my life, and I can tell you those places were places you come and go from, you don’t truly turn it into a home. They were a residence and a roof over my head, but we’ve all seen the cliché signs that says “Pawprints make a House a Home” or something else that compares a house to a home. Yes, they can be cheesy, but honestly you feel it when you own something that you get to make changes to, update, and maintain, vs. a place that is owned by someone else.

If you know something looking to build equity, take advantage of some tax benefits, or are looking to experience the pride of home ownership, I’ll ask you to share my contact information with them. And if you think of any other benefits to owning vs. renting feel free to share and we’ll strike up a conversation.