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It may be time for you to analyze the question of Rent Vs. Own. When you're struggling in a chokehold of high and ever-rising rents, it's hard to get ahead.
If you're thinking it might be time to buy your first home, use this page to make an educated decision. Here are three very important reasons why it may be time for you to consider becoming a first-time homeowner:
Out-of-control rent increases are the biggest reason to consider buying. If you’ve been living and working in the Silicon Valley for a while, you’re very familiar with this problem. You’re getting tiny increases in salary and huge, unpredictable, and unrestrained increases in rent. Every year, you worry about how your budget might be wrecked again this year. Tenants have few (and often no) protections against greedy rent increases. It’s hard to create wealth for your future.
First-time homeowners often don’t understand equity. Simply put, it means the current $$$ value of your investment in a home. It’s what you could get out of selling the home once your mortgage and other obligations are paid off. In general, equity starts with your down payment and grows every month with your principle payment. This Buy Vs. Rent Calculator should demonstrate the concept.
Homeowner tax deductions can completely change your income tax obligation. Once your income reaches a certain point, owning your home can decrease your income taxes every year. Home ownership entitles you to many tax deductions which may make owning a home your smartest financial move.
This is an issue that few first-time homeowners understand. We’re not tax experts and cannot advise you on this. Consider investing in a consultation with a CPA about your particular situation. Find out how buying a home would affect the amount of income tax that you’ll legally be required to pay. You’ll likely be surprised and probably pretty excited once you fully understand why owning your home is a smart tax move.
Here's a great tool you can use to figure out the Costs To Rent Vs. Costs To Own. It's pretty self explanatory. When you put your cursor in an input cell, you'll see that an explanation will appear to the right. Some of the answers might not be obvious to you at first, but here's a few ideas to get you started in using this tool.
You may not understand exactly what equity means. For the sake of simplicity, you can thinking of it as a "savings account". When you pay your down payment to the escrow company, it does not disappear. It becomes the beginning of your equity in a home. Every month, the principle portion of your mortgage payment adds to the equity. Please realize that there is no guarantee of this happening. Real estate does go up and down in value. However, in the Silicon Valley, the long-term trend is ever upwards, with periodic "price corrections". Think of owning a home as a tool for building your wealth—while you get to enjoy living in your asset. Here's the information on how you can interpret this calculation of the potential equity you could have in your home:
When you're looking at taking control of your financial situation, it's important to consider how owning a home can reduce your income taxes. Without considering this, you aren't looking at the whole picture of how owning a home can be a major benefit. Home ownership comes with certain tax deductions that effectively reduces the amount of income tax you will pay.
Here’s a trusted resource to educate yourself about homeowner tax deductions. Consult a tax advisor for your specific details.
Here’s how you can calculate what your mortgage and property tax deductions might be.
To keep it simple, think of it this way. You can expect to deduct two items from your Gross Income on your tax return. The interest portion of your mortgage payment is tax deductible in addition to the property tax you pay every year. Obviously, from this article, there are other deductions available, but often they don't apply except for the first year of the loan. Here is how you can get a rough calculation of the amount of these two deductions you'd be entitled to if you should buy a home.
Here’s a calculator that shows you the impact these deductions might have on your income tax. The next thing you want to look at is how these homeowner deductions affect the amount of income tax you owe. Again, this is something that you should consult a CPA about in advance of a buying decision. It's not something we're qualified to advise you about. Get real and find out the numbers for your own situation before you make your decision. This calculator will give you a VERY ROUGH estimate of your income tax savings from buying a home. Some of the answers might not be obvious to you at first, but here's a few ideas to get you started in using this tool.
Do your own financial analysis to see if home ownership is your smartest financial move at this time. If the numbers don't work for you now, that doesn't have to be the end of your dream. You can put together a plan for your future.
If you've found this information useful, how about having a conversation about what you've learned and we can talk about your options.
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