Real estate remains the safest stronghold of personal and family security of all… period. If you are one of those who has struggled to maintain a consistent savings regimen, and especially if your work doesn’t or hasn’t made regular deposits to a retirement plan, then you may be among the 64 percent of Americans who have nothing put aside for retirement according to a recent GOBankingRates.com survey. And if you pay rent as well, then you get the double whammy of rising housing expenses (rent) and zero equity building.
On the other hand, if you do own your home, even with a mortgage, congratulations! You have light at the end of the tunnel. Take the value of your house and multiply it by 1.06 or 6 percent, and that’s historically the amount of equity you’re building every year. That’s the 60-year national average, but also the Denver area average over the last 20 years of housing ups and downs. For metro Denver, the increase in home values is over 80 percent in just the last eight years! Due to the income tax deductions for property taxes and mortgage interest, the monthly cost of buying a home is frequently less than that of renting the same home. If there’s any possible way for you to do so… own! Don’t rent.
But, that’s all been said before, so let’s go a couple steps further. Given all I’ve said so far, it stands to reason that if owning a home is that advantageous, then owning two (or more) is even better. While that is absolutely true, of course, that’s more easily said than done because… down payment, management, maintenance, vacancy, etc. Owning income property can certainly be a very lucrative vehicle with which to retire comfortably. My only caution to you is to take the time to understand and be ready for the resources, planning and work it entails.
The posturing that actually came to mind, prompting the title and content of this writing, is mostly relevant to those who already own a home. It has everything to do with today’s mortgage interest rates. When I started selling real estate, mortgage rates had just fallen to 13 percent from the high of 20 percent. Over the next 20 years, rates gradually dropped below 6 percent and everyone was relieved and happy. After the sub-prime lending/housing meltdown of 2008, the Fed saw fit to drop rates aggressively to fuel the economy. When mortgage rates dipped below 4 percent in 2012, I have to say I thought I’d awakened in the Land of Oz. Mind blown! As of the date I’m writing this, I’m getting reports of 3.25 percent mortgage rates with no points or origination fee. It seems almost crazy.
So, in light of these crazy low rates, this is my adamant advice to you, reverting to my headline: “Posture Now for the Next 10 Years” by getting yourself into that home you see yourself in for the next 5, 10 or even 20 years. If you’re in a starter home and envision something more, stretch for it now (within reason) because interest rates won’t always be this low, and buying power diminishes quickly when the cost of money increases. A 1 percent rise equals $60 a month more on your house payment for each $100,000 mortgage amount. Another way to look at it is that you lose 11 percent of the price you can buy for every 1 percent rate increase. So, if you qualify for a $500,000 house at 3.5 percent, then you can only spend $455,000 when rates are 4.5 percent again. And if you’re in that big house you raised your kids in, but now wish to downsize, you have two distinct advantages right now. The first is, again, low interest rates, and the second, which may be even more important, is that this market is strong for selling the bigger house for top dollar, whereas when interest rates go up, the market tends to soften commensurately.
This is a very advantageous time for those able to avail themselves of these unique and temporary conditions. I suggest taking stock of this and know it can all change in a heartbeat. Are you ready for that future that comes before you know it? Are your adult children getting ready? Do you need more information or insight? Now is the time to give it serious consideration. As always, The “Home” Team wishes you Happy Homes for all your years.