Essay Sample on Real Estate Investment Benefits

Introduction

Homeownership represents the American dream and often comes with a sense of pride. One of the best financial decisions anyone can make is real estate investment. However, real estate investment is not appealing to many people, and they are reluctant to buy houses because of many reasons. Some of the reasons why people are hesitant to invest in real estate are the hostile job markets that represent financial instability, decreasing home values, and the high debts, primarily the student debts that leave them with nothing to save and invest. The millennial generation faces these problems, and this is the reason why there is a drop in home ownership (Lennartz, Arundel & Ronald, 2016). Nowadays people prefer renting because on the face of it seems cheaper and more comfortable. The decision to buy a house varies from individual to individual, and while some people may be better off renting than buying, after considering the benefits of purchasing home over renting, it is apparent that investing in real estate is the best way to go.

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Investing in real estate enables homeowners to build equity over time. Purchasing homes and paying mortgage payments act as a way of forced savings. Several studies indicate that homes appreciate and rise in value around the world from at least 4% to 6% every year (McCabe, 2016). It is worth noting that homeowners can also build equity as long as they pay their mortgage and maintain their home value. Real estate investment also saves homeowners from unnecessary taxations. Homeowners can itemize federal income taxes by deducting mortgage interest payments and fees levied on the property (Sommer & Sullivan, 2018). The housing payments for homeowners always remain stable until the mortgage payment is made. For instance, if the fee is a fixed-rate mortgage, the amount paid for principal and interests will remain the same over the loan duration period. Homeowners enjoy the annual tax write-offs and the deductions from the mortgage payment interest (Sommer & Sullivan, 2018). The write-offs and deductions act as savings for the homeowners, a privilege that is not enjoyed by renters.

When faced with the decisions of choosing between paying rent and mortgage, many people want to pay rent because it looks attractive and cheaper. Tenants always pay the landlords a monthly fee at the beginning of every month, while purchasers still pay in cash which is very expensive or borrows money from the bank to purchase the house (Bracke, 2015). The purchaser is however mandated to pay the bank the amount borrowed with the aggregated interests. When people compare the monthly rental fees and the accrued interests and loan payments, they decide to rent, but the total long-term financial differences between the renting and purchasing say the opposite (Bracke, 2015).

The interest rates for purchasing a home are relatively low compared to paying monthly rental fees (Sommer & Sullivan, 2018). For instance, a 20-year mortgage rate helps homeowners save a lot of money monthly for decades. It is worth noting that when comparing the benefits of renting and owning a home, it is evident that the mortgage payments rates are lower compared to rental rates, plus homeowners always enjoy the yearly tax deductions (Sommer & Sullivan, 2018). Another advantage of owning a home is that the monthly payments for a mortgage are highly predictable. With a fixed-rate mortgage, homeowners enjoy the privilege of paying the same amount each month, unlike rental apartments where the landlord may present the tenants with unpredictable terms of payments.

Paying a mortgage is relatively cheaper compared to the monthly fees paid for rents. The monthly rent payments go to the landlord while the mortgage payments to the bank are investments that are likely to appreciate with time. When the purchaser of the house pays the mortgage, their equity increases, and in return, they are saving for their retirement account unlike paying rent which is only profiting the landlord (Halket & Vasudev, 2014). Some of the factors to consider when comparing mortgage and rental payments are the location of the house, condition, the potential of the house to appreciate with time, and the features of the home. When comparing average rent payments and mortgage payments, it is apparent that rent seems to be cheaper, but after five years, the inflation rate will make the rent payments very expensive (Halket & Vasudev, 2014).

Homeowners may also choose to use their homes as sources of income. Homeowners may decide to rent their house instead of selling them and generate monthly revenue from the rent collected (McCabe, 2016). The revenue will be sustainable if the mortgage payments can be offset with the rental fees, therefore homeowners should invest in homes that appreciate with time and attract good rents when leased out. The risk associated with purchasing a home is that an investor can lose money when the asset depreciates, but several studies indicate that investors are likely to make profits because house appreciates over time (McCabe, 2016). For instance, real estate investment in areas such as Miami, Washington DC, and New York will attract good profits because the cities are crowded with professional who intend to live for many years. Investing in real estates in these areas increases net worth because of the market inflation and the appreciation of the houses for the purchasers (McCabe, 2016). Homeowners can also earn from their homes by renting out an extra room or contacting long-term tenants to rent a basement.

Real estate investment also gives a sense of social security because homeowners decide to settle in a community where they buy homes. The homeowners will be in a position to benefit from community projects as they will be permanent residents (Easthope, 2014). They will have the freedom to associate freely with their neighbors, join groups such as homeowners' association and engage in volunteer projects that benefit the community in general. The homeowners also experience a sense of pride that comes with owning a home as they are not buying a piece of the estate, but a home surrounded with good neighborhood and people working for a greater good (Easthope, 2014). Tenants who rent houses do not enjoy the same privileges as they avoid interpersonal relationships knowing that they are likely to move out anytime their leases are terminated (Easthope, 2014). For the homeowners, these relationships create a healthy environment with an excellent, reliable support system.

Real estate investment gives the homeowners the freedom to change the environment and decorate it to fit their tastes because they possess the property and have full ownership. The homeowners have the freedom to redesign and make appropriate changes to their homes (McCabe, 2016). Unlike the renters who cannot alter the rental apartments to fit their tastes, homeowners enjoy the sense of control over their homes. This type of power and freedom gives the purchasers of homes great satisfaction and a positive mindset of creating a home that meets the needs of the whole family (McCabe, 2016). Purchasing a home also has an advantage of owning a yard that gives homeowners privacy, unlike rental apartments where one hangs out in a crowded area such as the swimming pools. The yards are also essential for homeowners who may want to keep pets because rental apartments restrict keeping of large pets. The yard also gives the homeowners a playing ground with their kids and peace from outside disturbance.

For homeowners, several factors need to be taken into consideration before deciding to settle down. These factors include price considerations, and for homeowners to efficiently pay off the mortgage payments, they must evaluate their disposable income after offsetting all expenses and determine whether mortgage payments are cheaper to rental payments (Bracke, 2015). Homeowners need to understand the financial implications of maintenance costs. Unlike renters, the homeowners are responsible for regular maintenance. They should realize that insurance only covers damages that include fire, vandalism, and natural disasters such as wind (Bracke, 2015). However, the new home warranty comes in handy for the homeowners as it covers part of the maintenance costs such as plumbing, furnaces, water heaters, air conditioners, and garage doors among others.

Another factor to consider before purchasing a home is the commitment to stay in a particular place. It is advised that homeowners should reside for more than five years to cater for the costs of getting a mortgage and the terms of mortgage payments (Halket & Vasudev, 2014). Financial commitment is also essential for the homeowners especially when they are planning to borrow the loan as partners, either as family members, spouses or friends. Homeowners need to take into consideration the financial requirements for qualifying for a loan to purchase the house. These financial requirements are the credit scores and credit reports, lenders will have access to your income and homeowners may be required to provide bank statements, pay slips and tax returns (Figari et al., 2017).

The credit reports and the income statements are used to compute the debt to income ratio to determine whether one is capable of offsetting mortgage payment, property taxes, mortgage insurance, and the homeowner's insurance among others (Figari et al., 2017). Homeowners should also evaluate the provisions for down payment and cash reserves and establish whether they are favorable compared to rental terms. Homeowners should also do due diligence to determine whether the houses they want to purchase have been leased out to other people or whether there is a lien on the property.

Some other upfront costs to consider before purchasing a home are earnest money which is the amount paid by a purchaser to the seller to show the seriousness of the buyer. Purchasers will also need to pay for a home appraisal to determine that the offer price matches the value of the home (Sommer & Sullivan, 2018). Purchasers should also pay for home inspection services for professionals who identify any defects that may not be apparent to an inexperienced buyer. Other recurring costs that are paid by homeowners are the loan payments that include the principal and the interest payments of the mortgage loan. The loan payments could either be fixed-rate mortgage and adjustable mortgage rates. Other recurring costs include property taxes, insurance, and utilities such as electricity bills, water bills, gas, cables and internet, and garbage fees among others (Sommer & Sullivan, 2018). Unlike renters, homeowners also incur extra costs for furnishing, moving expenses, and renovations fees to redesign the homes to meet your standards and tastes.

Even though the advantages of buying homes supersede renting apartments, there are disadvantages associated with investing in real estate. Some of these disadvantages include the responsibility for catering for repairs and maintenance (McCabe, 2016). Unlike renters, homeowners incur all the costs required for maintenance. Homeowners face the risk of financial loss because, in as much as the homeownership build equity, the equity does not promise automatic profit because the home may decrease in value or remain constant during the tenure (McCabe, 2016). Most homes that are purchased are not fully furnished, and homeowners need a lot of money and energy furnishing the homes. Another disadvantage of buying a home is the upfront costs involved in offsetting various expenses such as earnest money, home appraisal, home inspection fees, down payment, insurance costs, and property taxes. Homeowners cannot also freely move from their homes (McCabe, 2016).

Conclusion

In conclusion, even tho...