Pros to Buying a house
You own it
You do not have to worry about anyone telling you what to do with your own house (outside the municipal building with code violations haha). You can paint it whatever color you want. You can have as many people as you want stay over. You are your own boss when it comes to your home. There is also a sense of pride of ownership which you typically don’t have as you rent. Not to mention, you have a lot more privacy. You don’t have a landlord knocking on your door bothering you for any reason.
You have an asset that appreciates and depreciates at the same time!
What do I mean by that? Well, typically homes appreciate in value over time. Especially if you are in an area which has been growing and growth does not look like it is ending any time soon. For the most part, most of Northern New Jersey consistently appreciates as most people want to be closer to New York City. I have seen some homes appreciate tens of thousands of dollars in a very short period of time. Also, in some states such as Texas, I have seen some parts of Austin appreciate by double their worth in less than 5 years! Regardless, you have an asset. As far as depreciation, you have an asset that in the government’s eyes that allows you to deduct your rental expenses from any rental income you earn, thereby lowering your tax liability. Most rental property expenses – including mortgage insurance, property taxes, repair and maintenance expenses, home office expenses, insurance, professional services and travel expenses related to management. Not to mention, the property is assumed to wear out and decay over time so there are those tax benefits as well. (Note: I am not an accountant so confirm with yours on exactly how much you can save this way.)
A steady source of income
With the right tenants and proper systems in place for maintenance, you can earn a steady flow of income every month and the tenants will pay for your mortgage. Therefore, you are building equity from someone else’s payments! If you don’t have a mortgage, it is straight cash flow after taxes! If you buy right, you can basically live there for free or even make money in your investment home.
Cons to Buying a Home
It is a long-term financial commitment
As I mentioned previously, the benefit of owning a home is you own, but the disadvantage is that you OWN it. Real estate is not something that can be picked up and brought with you wherever you go. It is much more difficult to travel or move some place else knowing you own a home in another place.
Maintenance is on YOU
You do not have anyone you can blame for the maintenance of your home. You must keep it up to par with the rest of the neighborhood and if you have tenants, you are the one they come to see when a toilet isn’t working. Of course there are ways to mitigate this nuisance, but be prepared for that 2am phone call.
The initial costs of buying a home
Although you may be able to cash flow while you own your own home in a multi-family, the initial costs can hurt. Even an FHA 3.5% loan could cost you dependent on where you live. Here in NJ, home don’t go for less than $100-200k without needing some major repairs or being in a less fortunate area. Therefore, that is $3500-$7000 out of pocket not including closing costs. Even for a VA loan which is 100% financed, the closing costs and reserves are close to $12k for my home which I am purchasing for $170k. I can only imagine how much more it is if I wasn’t blessed with the VA loan. (Of course, you can ask for a concession from the seller to pay closing costs and there are some programs out there, but it all depends on your circumstances.)
Overall, there are pros and cons to home ownership. Next week, I will go over the benefits and disadvantages to renting and you can decide which is better for your current situation. Remember, if you have any questions on either, you can feel free to reach out to me at 973-969-2299 and I will be happy to talk to you about you can get preapproved for a home loan.