By Valerie Byrd
Unfortunately, in our current economy, many have become jaded about what used to be enthusiastically called "the American Dream." Until recently, it was just assumed that homeownership was a life goal that all Americans should strive for.
However, when the economy took a sudden turn a few years ago and the mortgage bubble burst, it sufficiently scared both current homeowners and quite a few who hadn't bought yet. Suddenly, many believed they couldn't afford to risk buying a home, and those who could afford it began to get cold feet.
There are many misconceptions out there about the risks vs. rewards of buying a home over renting. Saving money through tax breaks is just one of the many benefits of buying over renting. The truth is that with home prices so reasonable and incentives as high as they've ever been, now is a great time to buy a home. Here are three things you as a Realtor may not yet be clearly sharing with your clients to help them see the highlights and advantages of buying a home over renting:
1. Emphasize the Benefits of Tax Discounts
One of the strongest incentives to own over rent is the tax savings. Inform your clients that they can benefit in the following ways:
• Loan points and origin fees at closing can be deducted from your taxes. Note: They can be deducted by the homebuyer even if the seller paid them (i.e. in some cases the seller will pay them as part of the final deal.)
• The interest paid on a mortgage loan is deductible over the life of the loan.
• Under the Home Equity Loan exception, homebuyers are allowed to deduct the interest on an additional $100,000 of mortgage debt for any purpose, such as a home equity loan. How does this benefit a buyer as opposed to a renter? For example, a home owner who has credit card debt could get a home equity loan, pay off the credit card debt and be able to write off the interest of the home equity loan. A renter with credit card debt would not have this option and cannot write off the credit card debt interest. (However, keep in mind that the home is the collateral if you ever default on the loan.)
• If you have owned and lived in your home for at least two of the last five years, up to $250,000 of your profits on the sale of the house is exempt from income tax. If you are married, that jumps to $500,000. This is not a one-time thing; you can do this as often as every two years for the rest of your life.
2. Passive Income Through Renting to Others
Remind renters that if they own their own property, they could have the option of having tenants and earning passive income through rent payments. If they buy a duplex or townhouse, they will be able to have tenants immediately after buying the home. If they buy a single family home, they could convert their attic or basement into an apartment. Even if they just rent out one room, the rent money that is generated could help them to pay their mortgage payment.
3. Start a Renter Education Program for Your Clients
As a Realtor, you might consider starting a renter education program as a resource for your clients. In June of 2012, the Northern Virginia Association of Realtors leaders started their “Ask Me!” initiative. This project helps link area homebuyers and sellers with Realtors who help educate them about the benefits of buying over renting. Often, potential homebuyers have lots of questions, and providing this sort of resource could help people make the decision that will be most beneficial to them.
Whichever decision your clients make, there are still benefits to both buying and renting. For one, if your clients are in a transitional phase in their lives, renting might be the answer for them, as it can be a great short term option. This is especially true for younger singles. However, if your clients are looking to settle down and start a family, and save money in the long run, buying a home may be the way to go.
Valerie Byrd has been a freelance writer for the past five years, focusing on interior design and staging, tips for new homeowners, and LEED-certified building.