by Barry Tadmore

Created on: July 22, 2008

I actually had a friend of mine have the audacity to tell me that buying a house is a bad investment. This is the type of person who always has the answer to everything, and doesn't seem to accept the fact that someone else disagrees with him. So he and I had a very fun time arguing over this one. And my biggest argument to him? He's living in the basement of my house, paying me $400 rent, paying down a portion of my mortage for me. As he would be doing for someone else no matter where he rents. Here were my arguments as to why it is smart to invest in real estate.

INVEST IN AN APPRECIATING ASSET
Four years ago, I bought my home for $150,000. I had the home appraised two months ago and it appraised at $230,000. So in four years, my home has appreciated 53%! It's hard to find too many investments that will return that kind of cash. Of course, I got into the market at the right time and not everyone will have the same kind of luck, but even if it only appreciated half that amount it would be a great investment. Why? Because it hasn't cost me that much!

MORTGAGE PAYMENT NOT MUCH HIGHER THAN RENT
My monthly mortgage payments are $1,100. Before I bought the house, my rent was $800. I'm only paying $300 more per month to have my own home, be able to paint walls and make any other changes I want.

IT'S NOT AS EXPENSIVE AS YOU WOULD THINK
I only put $2,000 down on my home. Also, I only pay $300 more than I did for rent. I've put about $5,000 into my home since I moved in. If you total that up, $2,000+$5,000+$14,400($300 extra per month x 48 months)=$21,400.

YOU'RE BUILDING EQUITY
If you take the number from the last example, $21,400, which is what I've paid to be in my house instead of renting, and look at the fact that I've paid my mortgage down to $138,000 while my home is worth $230,000. What I'm saying is that I have $92,000 in equity while only having paid $21,400. That's about a 430% return on investment. Amazing!

TAX BENEFITS
For anyone who owns a home, they know the tax benefits. You get to deduct the interest on your taxes at the end of the year. In addition, you get to deduct the property taxes, if you live in an area where you pay property taxes. And of course, when you buy your home, you pay points. Those are also tax deductible. When you calculate how much money you get back each year, owning a home is an even better investment.

These are all the financial benefits. Of course, that's the reason you're "investing" in real estate...for the financial benefits. Because owning a home ends up costing you more money than renting, it might seem intimidating. But homes appreciate and you'll end up earning MUCH more money than you would if you rented. So should you buy now or wait? Here's my final arguement/example:

If you wait one year to buy a $200,000 house, it might appreciate 5-10% in that time. To be conservative, let's say that home appreciates 5% over the year. That house you waited to buy is now going to cost you $10,000. If you bought it a year before, you would have $10,000 in equity already. Buy now, buy now, buy now!

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