Four things I wish I'd know about home ownership starting out

I grew up in a trailer house on 40 acres in East Texas. Home ownership was not something I was exposed to: we didn't own a traditional home, and we didn't talk about owning a home or any of the things related to owning a home. This carried over into my adult life. Once I started working as an attorney I was content to continue renting the same house I lived in during law school.

It wasn't until I met Paul that I started to learn about real estate and the many benefits of home ownership, including using real estate as an investment tool. I was shocked to realize that real estate could be a tool to make money that extended beyond my day job. It didn't take much to convince me to start building wealth by owning a home.

At that point I had regrettably wasted a lot of money and time renting a house when I should have owned one. I don't want you to make the same mistake I did, so I'm sharing four basic real estate principles I wish I'd known starting out.

Our homes serve two purposes. At the most basic, our homes meet our critical need for shelter, but our homes also serve the dual purpose of being an investment in our own future. Simply by owning a piece of property, you can begin to passively build wealth.

Owning a home is like having a savings account. By paying for where you live, you are paying toward your future savings. Here's how it works.

As you pay your mortgage to the bank each month, you are making payments on your own behalf (instead of perhaps paying rent to a landlord). The more you pay toward your loan, the more equity you have in your home.

Once you sell your property, the mortgage company gets paid any money that is still owed on your mortgage. But you get money too! Assuming your home has held its value, you get back the money you paid the bank for your home, including your down payment and any money you paid toward your mortgage each month.

But here's the real kicker... If your home appreciated in value, you get to keep any profit beyond what it takes to pay off your loan. While the bank only gets what they are owed, you get to cash in on the appreciation. So by owning property in an appreciating area, you can actually end up making money when it comes time to sell. This is a simplified explanation of how it all works, but hopefully you get the general idea.

A housing mortgage can also be a hedge against inflation. While not all mortgages are the same, in most traditional mortgages you are locked into a steady interest rate for the duration of your loan period. So if you have a 30 year mortgage with a 5% interest rate, that will be your interest rate for the next 30 years -- even if inflation or the cost of living goes up.

That's not to say that all of your housing costs are static. While your interest rate may not change, other housing costs may increase. Your taxes and insurance form a substantial portion of your monthly mortgage payment, and those payments are likely to increase over the course of a long-term loan. Also remember that some loans -- like an adjustable rate mortgage or ARM -- will have a fluctuating interest rate.

Owning a home can also benefit you when it comes time to pay your income tax to the Internal Revenue Service. We'll leave the tax advice to an accountant, but both your primary residence and investment properties can provide several appealing tax deductions.

USING HOME OWNERSHIP TO BUILD WEALTH

We all need a place to live. The question is how you approach it. You can pay rent to a landlord and see no return when you move out. OR you can buy a home, pay the mortgage company, and get your money back as well as maybe make a little profit when you sell your home. Personally, I wish I'd known about the second option much earlier in life. And don't forget the other benefits of home ownership too, like tax deductions, mostly stable housing costs, and more.

If you've been wondering if buying a home is the right move for you, we're happy to share our knowledge and experience to get you started on the path to building wealth through real estate.

Marquette Reddam, Director of Operations

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512-569-5711