This post is part of my Freaky Financial Fridays series, where I argue a case from an opposing view, generally in contradiction to my own philosophy or conventional financial advice.
Why is it that we are afraid to maximize our single greatest investment, the home in which we live? There may be better investments out there, but the fact is that most of us don’t take advantage of those alternatives. Even those who realize the incredible growth potential of real estate usually stop after buying their own home. Unless you are planning to take on an investment property with positive cash flow or take full advantage of other, better investments, then buying the most expensive home you can afford may help your finances to grow the most.
If your house goes up in value by 30% between when you buy it and when you sell it, would you rather take a gain on a $250,000 house or a $500,000 one? Clearly the more expensive the house, the more you stand to gain. Real estate has its ups and downs (the current down may last a while) but over longer periods of time assets like real estate generally appreciate in value.
Here are some other advantages of investing in real estate, particularly in an expensive home for yourself:
- Gains up to $250,000 ($500,000 if married filing jointly) are tax free
- Real Estate leverages other people’s (i.e. the bank’s) money so you gain not only on your investment but also on the banks’
- Mortgage rates are usually much lower than other types of loans. You’ll be shocked at the rates to borrow from other sources to invest elsewhere, such as a margin account with your stock broker.
- House values often double in 10 years, so over a 30 year mortgage, your home could be worth 8x your purchase price.
- Mortgage interest is deductible.
When people sell their homes, they are often amazed at the massive gains they’ve made. If they truly learned from this experience, they’d leverage their gains as much as possible by purchasing the most expensive home they could afford. You too can take advantage of this idea, even if you’ve purchasing your first home.
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June 27th, 2008 at 11:27 am
[…] Original post by Richer by the Day » Richer by the Day […]
June 27th, 2008 at 2:26 pm
It is against Islamic law to pay or receive interest, this has been a huge problem for Muslims living in Britain. Financial Advice
July 8th, 2008 at 1:52 pm
Whoa. Relax, it doesn’t always work out that way. Once you add up all the interest you’ve paid + property taxes + maintenance + the difference in utilities, the big huge profit…just isn’t so.