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Home > Home Buying Tips > The Rules of Real Estate have Changed

The Rules of Real Estate have Changed!


Just a few years ago real estate experts were advising investors to purchase as much real estate as possible by leveraging assets through private financing. While that may have been a good strategy at the time, since then the market has experienced a drastic decline and the rules have since changed.

Many of the same people who followed that advice and relied on borrowing money in order to build extensive real estate investments are now suffering from the effects of over-extending their financial resources. This problem is not only effecting investors but also homeowners who relied on the same advice to purchase their primary residence and are now facing potential financial disaster. One of the reasons for this is that many people bought into the idea of the impenetrable real estate market. They believed their home was a solid investment and did not prepare themselves for the inevitable turn that the market was going to take. If you are considering the purchase of a home in the future, it is imperative to make sure that you do not buy for the wrong reasons.

One common myth that many people still believe is that their home is a good investment. We now know that is not always the case. There is always a good chance that your home will hold value over a long period of time, but do not buy into the idea that it will appreciate in value faster than the rate of inflation. Ultimately, there is not much chance that you will become independently wealthy simply by owning a home.

In addition, if you decide to sell your home, steer away from the idea that you can simply deduct the amount you paid for it from the sales price to determine how much you will have earned on your home ownership. The final cost basis will include any home improvements that have been made as well as maintenance expenses and tax bills. All of this must be subtracted from the sales price. When you take into the true cost of owning a home, you will likely find that you will not have made as much money on home ownership as you originally thought.

Another common myth that many people still buy into regarding home ownership is that they will receive a tax deduction. It is true that a tax deduction is offered by the government for mortgage interest as well as other types of tax credits, such as green technology but in general, these tax benefits will not outweigh the expenses of home ownership. Most homeowners eventually find that their tax return is not affected that much by the tax deductions related to their home.

Many people make the decision to purchase a home because they have heard that renting is the equivalent of throwing away money. During the early years of paying off a mortgage, there typically is not a substantial financial advantage to owning a home over renting. Renting; however, does offer the flexibility to being able to move if you need to do so without worrying about the hassles related to selling a home. In addition, with renting you also have fewer responsibilities and expenses.

Homeowners and those considering the purchase of a home often believe that home ownership forces you to save money. It is true that as you pay off the principal portion of your mortgage loan, you will be setting away money as part of your net worth. The problem; however, occurs when you want to actually access that money. With a true savings account, you earn interest on your savings and you can tap into at any time. That is not the case with a home. You can only access the funds by selling the home, refinancing it or taking out a line of credit or loan on the home. If you choose to refinance, you will also likely end up paying even more money in interest if you choose to extend the term of the mortgage loan.

Home ownership will probably always remain the true definition of having achieved the American dream, but it is important to keep in mind that due to shifts in the real estate market, the rules have changed. Finances can play a critical role in determining whether renting or buying a home at the current time is the best option, given the current circumstances. The best option is to run the numbers and make a sound and informed decision based on what is best at the time the decision must be made.


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