Wealth creation involves accumulation of assets and increasing net worth over an extended period of time. Among one of the most common methods to achieve this is purchasing a home. Read on to learn how investing in a new Empire home can help you build long-term wealth.
1. Amortization
Amortization is defined as paying off a debt over time through a series of equal payments. In other words, it’s a way to gradually reduce the outstanding balance of a loan or other debt. Each time you make a house payment, a portion of that payment is made to your principal balance, lowering the balance due and increasing your equity.
This concept combined with real estate appreciation long-term increases your net worth, and makes managing your finances and planning for the future easier. When owning and paying off your own loan, your value of assets increases over time which becomes evident if you eventually sell your home.
2. Leverage
Purchasing a home allows you to grow your initial investment exponentially and build long-term wealth. This can be done through leverage. Let’s break this down into simpler terms.
If you buy a home for $500,000 and invest 5% down, you’ve spent $25,000. If you work with a preferred lender, you can borrow 95% of the price to purchase, but keep all the profits when you sell.
At a rate of approximately 5% appreciation each year (depending on the housing market), your $500,000 home would be worth about $780,000 in a decade. Your initial cash-out at purchase of $25,000 grew to approximately $280,000 of net-worth accumulation. This yields more than a 10x return, simply by making your house payments.
3. Taxes & Appreciation
As a homeowner, there are several items you can deduct on your taxes. Property taxes, mortgage insurance, and interest can offset what would be taxable income if you were renting. After making this home your primary residence for two years, you’ll avoid paying capital gains taxes when the home appreciates and is sold — saving you tons of money long-term.
Other investments sometimes require a capital gains tax on any return that you make, depending on your taxable income. The profit you make from selling a home, however, cannot be taxed if the amount is $250,000 or less for a single borrower.
And although the real estate market has been fickle over the past four decades, residential real estate has increased in value over time, making it a good investment decision at any point.
4. Build Family Wealth
It’s common practice to keep houses in families as a way to build wealth through generations. A house can be passed down through generations, who can then sell it for a profit. In addition, family members can purchase homes from each other at discounted prices to easily build equity. Homeownership also encourages future generations to become homeowners. The rate of children who grow up to own homes is higher for those whose parents were homeowners, than for children of renters.
Overall, it makes sense to start investing early so investments have more time to appreciate. This can help shape the financial skills while your children are young, setting them up for success in the future.
How We Can Help
Buying a home is one of the biggest decisions you’ll ever make, and we understand the importance of finding a trusted homebuilder. Our preferred lenders are familiar with the Empire sales team, our communities, and the company’s policies and procedures to help you navigate the homebuying process and provide consistent updates.
Our preferred lenders also provide great expertise, access to special incentives, and financing options that make purchasing a home easier. Learn more about some of the industry’s top mortgage lenders, including Interlinc Mortgage (Houston area) and Movement Mortgage (San Antonio and Austin area), that we’ve teamed up with to help you build your wealth and secure a new home mortgage.
Looking to learn more about the homebuying process? Learn how to find the right neighborhood for you, and read our homebuyers’ guide to finances.
Discover available homes for sale in Houston, Austin, and San Antonio today.
*Disclaimer: This post is solely for informational purposes and is not a substitute for professional advice. We encourage you to always work with a financial expert to discuss your best options and what is right for you.