4 Things Homebuyers Should Know (when deciding to buy)

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Today let's review 4 things homebuyers should know (when deciding to buy).

Buying a home can:

- Help you feel settled.

- Help grow your net worth.

- Help you create generational wealth.

Unfortunately, homebuying has become more difficult.

The Reality

According to Bankrate, home loan interest rates are the highest they've been in 3 years.

^{History of interest rates}

Which means:

- Getting a loan.

- Finding a home.

- Making an offer.

- Closing on your home.

..are more expensive things to do these days.

Leaving many people to wonder..

Is owning a home worth it?

Like most people, I heard this advice over and over.

So, not knowing much.

I got a loan to buy my first tiny condo near Seattle, Washington.

Since I had little money to put down.

The monthly payment was lots more than I was paying for in rent.

So I went with a 2 bedroom condo.

And my friend rented out the 2nd bedroom, which helped keep my monthly costs down.

It worked nicely at the time.

But two years later, I found myself selling the tiny condo to get a bigger place.

And as I was sitting there signing the final paperwork to transfer the condo to the new buyer.

3 big realizations hit.

I'd—

1. Bought the condo with little money down (around $1,500) because of getting a loan.

2. Paid thousands of dollars less in taxes each year because of homeowner tax breaks.

3. Sold the condo for $100k more than I'd bought it for and didn't have to pay any taxes on the $100k in profit.

It was a mind-blowing realization.

The Homebuyer Trap

Most people decide if they want to buy a home by comparing:

- How much they pay in rent each month to how much they'd pay if they bought a home each month.

- What the news, their friends and their family have to say about buying a home.

And I know this because I did it too.

And watched hundreds of other people do it the 10 years I worked at Chase as a banker.

But I didn't realize the full power of real estate.

Until selling that first tiny condo.

Which motivated me to learn how to get 6 more loans to buy 6 more properties.

The Hidden Perks of Real Estate

Most first-time homebuyers don't know how powerful real estate can be.

I sure didn't.

So here's 4 things worth knowing if you're deciding whether or not to buy a home (or already own one and want to know more about the perks).

Things I wish I'd discovered sooner.

Let's dive in:

1. The Mortgage Interest Tax Break

Buying a home also means getting a mortgage loan (for most people).

And getting a mortgage loan means paying interest on that loan every month.

Loan interest can be a few hundred or a few thousand dollars each month depending on how big your home loan is.

Fortunately, the IRS gives you the option to deduct your mortgage loan interest on your tax return each year:

Paying mortgage loan interest = getting a tax deduction

2. The Real Estate Tax Break

Buying a home also means paying property taxes.

And they're often included in your monthly home loan payment.

They can be a few hundred bucks per month to a few thousand bucks per month (if you buy a fancy house).

Fortunately, the IRS also gives you the option to deduct your real estate taxes on your tax return each year:

Paying real estate taxes = getting a tax deduction

3. The Home Improvements Tax Break

Buying a home also means spending money to fix it up (unless it's a brand new house).

And fixing up your home might mean spending money on home improvements:

Many types of home improvements also come with tax breaks when selling your home... if you keep the receipts.

But keeping track of those darn receipts can be a pain (I'm not very good at it).

So, here's a handy tip to help make it easy:

(the money cruncher is a good follow)

Paying for home improvements can = getting a tax break when selling your home

4. The Home Sale Tax Break

Eventually, you may want to sell your home one day.

And guess what?

There's a tremendous tax break for that too.

According to the IRS, a single person may qualify to sell their home for $250,000 more than they bought it for without having to pay any tax on the $250,000 in profit.

Or up to $500,000 in profit if they're married.

Selling your home = more potential tax breaks

The bottom line

My biggest mistake when deciding to buy my first home was not knowing about all of the different tax breaks for homeowners.

Just comparing what I paid in rent to what I'd pay if I got a loan and bought a home (and listening to what the media and my friends and family had to say).

But, as the years ticked by after finally buying the tiny condo and selling it 2 years later.

All of the tax perks became unignorable.

And I wondered why the heck nobody told me about them in the first place as a first-time homebuyer. I believe them to be one of the best parts of homeownership.

So, if you're thinking about buying a home. I hope this info is useful as you consider the different options for you and your family.

If you already own a home, you've likely noticed the extra tax perks each year when filing your tax returns.

Or maybe you sold a home in the past and didn't have to pay any taxes (or little tax) on the profits you made.

Either way, it's important to point out I'm not a CPA. This is just meant to be informational and educational.

And I hope it's useful 🏠

That's all for today.

See you next Saturday.