Wisdom and South Central Wisconsin Real Estate information

Imputed Rent

Everyone needs a place to live. We have to pay rent to use real estate. As renters we pay rent to  the landlord. When we purchase a home we pay rent to ourselves. We can subtract  the cost of renting from our mortgage payment since we are paying that cost
either way.

Leverage
There is an additional advantage to owning a home. Most people borrow most of  the money for the purchase of their home,
which increases the return on the appreciation you do get. This is  called “leverage”. If you were to pay cash for a home for say $200,000 and 
it appreciates 3% over time your  return on your investment would be $6,000, which is a 3% return on your $200,000
investment. If you were to make a 20% down payment on the the same property and  finance the rest, your return on your cash Investment would be a 15% return on  your $40,000 investment.
That’s great.

What about the interest you have to pay? 5% interest on your home would be around $8,000 for the year. Odds are you would pay at least that to rent the same house. Uncle Sam wants to help with that and will allow you to deduct your interest and taxes on your tax return  with the mortgage interest deduction.

Finally, you’re slowly but surely paying down your mortgage, which is like putting money in a savings account every month. This is why real estate is such a great way to build wealth over time. In fact, the Federal Reserve reports that the median homeowner has a net worth of $184,400, while the average renter’s net worth is $4,000

(Federal Reserve Board Survey of Consumer Finances,
2004).

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