The process of buying a home requires time, diligence, and patience. There are forms to fill out, documents to gather, lenders and real estate agents to consult, and usually down payments to be cobbled together. And yet home ownership remains the American Dream, not just because it provides a sense of stability, but also because for many people it’s the first real step toward building wealth.
Over time, few assets appreciate better than real estate — especially in a market like Charleston, where more and more industries are setting up shop and dozens of new residents arrive every day. Median home values in the area rose 6 percent last year, according to the Charleston Trident Association of Realtors, and are up 24 percent since 2014.
Combine that trend with low interest rates, and now is the ideal time to consider home buying as an initial step toward building wealth, according to David Stein, Executive Vice President at Family First Funding in Mount Pleasant. “The average person stays in their home for seven years, and over that time you should see appreciation, especially in a market like this,” he says. “Regardless of what happens with the national economy, this market is going to be more insulated than others.”
But even in markets beyond Charleston, home buying remains a tried-and-true pathway toward building personal wealth. Here are five reasons why purchasing a home now can help enhance your personal bottom line.
1. Buying is Financially Smarter Than Renting
Many people struggle to see the difference between renting and buying a home, given that each involve payments made monthly, and the former doesn’t require a down payment. Think of it this way, Stein suggests: when you’re renting, you’re paying someone else’s mortgage, without getting any of the money-saving tax breaks that benefit homeowners.
“You’re building wealth for the landlord,” Stein says. “You get no tax write-offs. You have absolutely nothing to show for it at the end of the term of your rent. It’s just throwing money out the window. But when you own your own house, it’s kind of a forced savings.” That’s why home ownership is financially smarter than renting.
2. It Comes with Tax Benefits
Can owning a home save you money? Indeed, when it comes to tax time. Home owners pay a lot of interest early in the life of their mortgages, Stein says, because that’s how banks set up the loans. But that doesn’t dilute the benefit of the tax write-off, which allows interest, property taxes and mortgage insurance to be deducted directly from gross income.
"It reduces your tax liability,” Stein says. The deductions for owner-occupied homes remained in the revised tax code implemented in 2018.
3. It Build Equity You Can Use
Major expenditures, particularly those that come as a surprise and inevitably are paid with a credit card, can contribute to burying people in debt. But homeowners, especially those who have been in their homes a few years, typically have the option of pulling some equity out of their homes via a credit line or a cash-out refinance.
A sizeable down payment would qualify as “instant equity,” Stein says. “If you’re not putting a lot of money down, it’s going to take time for appreciation before you have some equity available to borrow against. And there are lending limits on how high you can go in total outstanding obligations against the value of your property.”
4. Home Values Increase Over Time
And not just in Charleston — nationally, median home prices have increased 7.2 percent over the past year, according to the website Zillow, and are forecast to increase another 5.1 percent over the next year. Since 2000, the median home price has increased $152,900, according to the U.S. Census Bureau.
"Over a 20 year period of time, no matter where you pick a start date or an end date, you’re always going to come out ahead,” Stein says. “The market does cycle, but it’s like the stock market — you stay in it, and you’re going to come out ahead. You just have to have patience.”
That’s especially true in Charleston, whose robust growth shows no sign of slowing down. “We’re seeing 4 to 6 percent a year in appreciation, and I don’t think that’s going to tail off,” Stein says. “It may come down a little bit, but I don’t think any time in the next 10 years we’re going to see it go into the negative, especially with all the migration happening down here.”
5. Nothing Else Builds Wealth as Consistently
The crash and recession of a decade ago took a serious toll on the real estate market nationwide. The industry has since rebounded to the point where no other asset class builds wealth as consistently as real estate, thanks to the combination of appreciation and low interest rates.
That’s proven especially true for many people who make money off investment properties. But it doesn’t take becoming a landlord to begin building wealth through real estate — it can start with your very own home. “Just by owning your own home,” Stein says, “you’re building equity and wealth for yourself over time.”
Interested in more information on the value of home ownership, and how it can be a first step down the path toward building personal wealth? Contact Family First Funding in Mount Pleasant at (843) 375-8434, or visit their website at MountPleasant.Fam1Fund.com.