Adapted from a presentation by Leslie J Mohammed Managing Director First Citizens Mortgage and Trust Co.
Real estate agents often say that renters only have rent receipts to show for all their years of tenancy. It has also been said that renters are simply too busy or lazy to bother with home repair and maintenance. The home owner must grit his teeth and prepare for a lot of tap repairing, lawn cutting and other disagreeable tasks, which the landlord supplies to the renter. However, as a homeowner, the sense of pride he exudes on the accomplishment can be second to none, and thus one can readily understand the meaning of the phrase “a man’s home is his castle.” A home also satisfies a basic psychological need.
It is something we call our own, relate to, fit up, decorate, add to, play with, even love. Be it ever so humble, or so proud, there is no place like home. But home ownership is not always the proverbial bed of roses. The cost of buying or building is rising and so is the cost of maintenance — and rates and taxes. Perhaps the strongest reason for buying a home, and buying it now, is that housing is not going to get any cheaper. A home is an investment in every sense of the word, and it is an investment even better than stocks and bonds. A recent newspaper advertisement by a bank urged residents to put their savings in deposits. The advertisement showed a man investing $10,000 in the stock market and after 10 years of ups and downs he was right back where he started. The tag line was “There’s gotta be a better way.” Well, the best way for most of us is to buy a home. No other investment equals a home of your own — tax benefits, hedge against inflation, and long term safety.
In addition, the value of the house will certainly increase over the years. For most of us, it is the single biggest and best investment we would make in our lifetime. A house is a true investment. Unless you made a very poor choice, your house will increase in value every year. With reasonable maintenance, houses normally appreciate about 5 percent annually, homes in choice neighbourhoods can rise by 10 percent or more. The concept of equity is one that should be fully grasped by anyone considering home buying. The build up of equity in a home is the biggest single reason for the financial attractiveness of home ownership. Equity build-up come not only from the gradual reduction of the mortgage, but more from the appreciation value. As long as the home is not in a deteriorating neighbourhood or allowed to disintegrate, the inflationary forces at work in the housing market will make your home increasingly valuable. Thus, if you buy a home for $200,000 with a $20,000 down-payment, it is not unreasonable to presume that your house will be worth $270,000 ten years from now. Your stake in the house is now $90,000 instead of $20,000. Add to that the principal repaid over the ten years, say about $15,000, and you have a reasonable nest egg. And as the years go by the equity increases even faster.
In 25-30 years when the payments are completed, the home purchased for $200,000 can sell for more than $400,000. Owning a home is not easy. The initial hurdle is to have the cash available for the initial costs — down-payment, valuation fees, stamp duty and fees paid to the mortgage institution. There is one argument against buying a home now — you don’t have the down-payment. Those who already have a house usually have enough equity for a substantial down-payment, but for the family that is looking for its first home probably will not. In spite of the considerable obstacles, saving money for a down-payment is not an impossibility. Once you become used to some time of regular savings, it is lot less painful, and can even be satisfying. Consider the renter and the home owner, where the rent equals mortgage instalment. At the end, what will the renter have — a mountain of receipts. What will the person who sacrificed to raise the down-payment have — an unencumbered home. Take your pick.