The Financial Benefits of Homeownership

Homeownership provides financial benefit in four areas:

  1. Monthly cost difference between renting and owning
  2. Appreciation in home value
  3. Equity growth over time as loan balance is paid down
  4. Tax benefit from deductibility of mortgage interest

 

The information below is based on historical data for the Portland Metro Area and assumes a 4% appreciation rate, even though, historically, Portland has averaged 5.37%.

 

You can view the data from a rent-versus-buy viewpoint or the perspective of a current homeowner.  In both cases, consider all four factors because if you don’t own, you will be renting.

 

Scenario for Portland home worth $500k

  1. Cash flow difference:
    Historically, rent increases three percent per year, and a $500k home costs about $2567 to rent in Portland.  Renting is $10,408 less expensive over nine years (the average time a US homeowner lives in a house).  So, deduct $10,408 from the net benefit of owning a home.
  2. Gain through appreciation:
    At a conservative 4% appreciation rate, home value increases by $211,656.
  3. Equity through amortization:
    Amortization is the amount the mortgage would be paid down with no extra payments over a nine years period., and it’s a built-in savings plan for every homeowner.
  4. Tax benefit:
    The tax benefit associated with the mortgage interest deduction above the standard deduction.

 

When these four factors are combined, the net benefit of owning a home based on 4% appreciation is $2350 per month.

 

At the historical appreciation rate of 5.37%, the net benefit rises to $3495 per month!

 

If you are interested in further discussing this information, please give me a call at 503-546-0460.

2018-01-04T22:56:58+00:00