Traditionally There Have Been 4 Benefits To Purchasing U.S. Real Estate And All Of Them Are Now In Jeopardy.

Since the year 2004 the United States has slipped into the worst real estate market and overall economy in our country’s history. By worst real estate market I mean that the United States is now in the strongest Buyer’s Market of all time. In this Buyer’s Market the supply (home sellers) is exceeding demand (home buyers) by unprecedented and record breaking numbers. As a result real estate values are substantially decreasing. Naturally with real estate values decreasing there are now millions of Americans, who are potential property owners that have serious financial and psychological concerns about purchasing real estate. These concerns have millions of Americans now asking the following question.

Is It A Good Time To Purchase Real Estate?

The answer is simply this. If someone is expecting to purchase real estate and have it appreciate any time soon then the answer is statistically no. However if someone is expecting to purchase real estate and hold it for long term investment purposes the answer is statistically yes. Even if real estate values continue to decrease (depreciate) indefinitely purchasing real estate is still a far better financial and psychological investment statistically for most Americans as opposed to renting it. Let me explain why.

The  4 Traditional Benefits Of Real Estate Ownership

As a result of purchasing and owning real estate, throughout our country’s history, Americans have received 4 Traditional Benefits and they are as follows:

Traditional Benefit #1:     Appreciation

Traditional Benefit #2:     Equity 

Traditional Benefit #3:     Tax Benefits 

Traditional Benefit #4:     Pride Of Ownership

Now let’s briefly analyze each one of these 4 Traditional Benefits

Traditional Benefit #1: Appreciation

The first Traditional Benefit that purchasing and owning real estate has offered is Appreciation. As Americans, throughout the history of our country, have purchased real estate it has traditionally increased in value. This increase in value is referred to as Appreciation. Let me give you an example of what I mean. Let’s assume someone purchases a piece of real estate for ( $200,000 ) and then several years later it is now worth ($350,000). The Appreciation on this piece of real estate, in this example, would be ($150,000 ) which represents the difference between what it was worth versus what it is now worth.

Traditional Benefit #2:  Equity

The second Traditional Benefit that purchasing and owning real estate has offered is Equity. As real estate values have traditionally increased and property owners have paid their mortgage balances down it has led to the creation of real estate Equity. Equity is the difference between what a piece of real estate is worth minus how much is owed against it. Let me give you an example of how real estate Equity  is calculated. Let’s assume someone owns a piece of real estate that is currently worth ($400,000). They have a mortgage on it for ($150,000). The Equity in this piece of real estate, in this example, would be ($250,000).

As real estate values have increased over the years so has the amount of Equity in real estate increased as well. An increase in real estate Equity has given more American property owners their financial wealth and security than any other investment in the history of our country. Equity has also been a tremendous stimulant that has enabled the U. S. real estate market and overall economy to grow and prosper over the years as a result of billions and billions of dollars from Equity filtering, both directly and indirectly, into our economy.

Traditional Benefit #3:  Tax Benefits

The third Traditional Benefit that purchasing and owning real estate has offered is Tax Benefits. As Americans have purchased and owned real estate over the years they have been able to obtain substantial Tax Benefits. These Tax Benefits have resulted in property owners being able to put a lot more money in their pockets. How ? As a result of being able to deduct things like 1) mortgage interest, 2) property taxes, 3) depreciation, and 4) other miscellaneous types of deductions associated with real estate ownership property owners have been able to substantially increase the amount of tax refunds they’ve received from Uncle Sam. These increased tax refunds have not only increased Americans’ wealth but they have also positively stimulated the U. S. real estate market and overall economy as a result of these monies filtering into the economy. Yes there is no question about it that the traditional Tax Benefits associated with real estate ownership have truly proven to be substantial throughout the history of our country thus far.

Tax Advice For People Purchasing Real Estate 

I would strongly suggest that potential property owners seek competent tax advice prior to purchasing any piece of real estate. Why ? So that they have a full understanding of what their potential Tax Benefits will be prior to ownership. The best time to find out what the actual Tax Benefits will be when purchasing real estate is before signing of Agreements Of Sale, making final settlement, and taking title not afterwards.  

Tax Advice For People Selling Real Estate 

I would also strongly suggest that potential property owners seek competent tax advice prior to selling any piece of real estate. Why ? So that they have a full understanding of what their potential Tax Liabilities will be prior to conveying title. The best time to find out what the potential Tax Liabilities are when selling real estate is before signing of Agreements Of Sale, making final settlement, and conveying title not afterwards.

Mathematical Example As To Why Owning Real Estate Is Statistically Better Than Renting

Let’s assume that home buyers decide to purchase a home for ( $200,000 ) in the year 2008 and during the existence of the strongest Buyer’s Market of all time. Let’s further assume that 15 years later the home has decreased ( depreciated ) in value by ( $50,000 ) and that they can now only sell it for ( $ 150,000 ). The immediate reaction that most people would have to this scenario is that these poor and unfortunate home buyers have lost ($50,000) during this 15 year period. Not true. Actually these home buyers have made money and for that matter a lot of money. Perhaps as much as around ( $200,000 ) and here’s why.

Let’s also assume that these home buyers were able to pay off their mortgage during this 15 year period as a result of learning and applying the financial secrets that enable home owners to pay off their mortgages much faster. As a result of selling their home and receiving net proceeds of ( $150,000 ) they can now use this money to 1) purchase another home, 2) help retire on, or 3) do virtually whatever they want. In addition to the ( $150,000 ) in net proceeds they probably made about another ( $50,000 ) as well. How ? As a result of owning their home and being able to deduct things like 1) mortgage interest, 2) property taxes, and 3) other miscellaneous types of deductions associated with real estate ownership their tax refunds from Uncle Sam probably increased by another ( $50,000 ) during the 15 year period. 

Therefore as a result of receiving the ( $150,000 ) in net proceeds and the ( $50,000 ) in additional tax refunds these poor and unfortunate home buyers have actually made approximately ( $200,000 ) during a 15 year period even though the home they purchased and sold decreased in value by ( $50,000 ).

Now let’s analyze how much money these home buyers would have made, during the same 15 year period, had they decided to rent rather than purchase. Assuming th at their income and expenses would have been the same during this time frame they would have made nothing ( $0 ).

Hopefully this mathematical example makes it perfectly clear as to why purchasing and owning real estate offers substantial financial advantages that unfortunately renting  does not. This is true even in cases when real estate decreases in value. Hopefully a word to the wise should prove to be sufficient. 

Traditional Benefit #4:     Pride Of Ownership 

The fourth Traditional Benefit that purchasing and owning real estate has offered is Pride Of Ownership. Most Americans, throughout our country’s history, who have owned real estate as opposed to renting it have felt much better psychologically. Why ? There’s a very special feeling that most people get when they obtain their American Dream of real estate ownership. Simply stated they feel a lot better when they actually own a piece of the rock as opposed to renting a piece of it. This special feeling is called Pride Of Ownership and obtaining it has resulted in millions of Americans over the years being able to deal with life’s duties and responsibilities more proficiently, professionally, productively, and successfully. Why ? Because when life’s duties and responsibilities are handled in this manner it means that people in many cases have become more committed, responsible, and mature. Yes there is no question about it Pride Of Ownership has gone a long way in making millions of Americans not only feel better about themselves and their families, but also about their overall outlook on life generally.

Respectfully, Phil Mitsch

America's Economic, Real Estate, Lending And Motivational Coach
Real Estate Industry's All Time Top Producing Residential Realtor
2011 New Jersey State Senate Candidate

Cherry Hill, New Jersey
856-665-6569
http://PhilMitschForAmerica.com
philmitsch@verizon.net                   

Special Notes

The above article is an excerpt from Phil Mitsch’s How To Have A Successful Listing Attitude Book. This book is the first of 14 books that comprise his Real Estate Listing Agent Training system. 

Phil Mitsch has over  6000 1) U.S. Economic Crisis Solutions, 2) Home Buyer, 3) Home Seller, 4) Real Estate Professional, 5) Mortgage Professional, and 6) Life Lesson Tips that can be found in his 70 Books that comprise his 8 Training Systems.  These Systems can be found at http://PhilMitschForAmerica.com.