One way to create generational wealth is through the purchasing of a home. Here are four ways homeownership helps:
#1 Appreciation over time
Purchasing the right home can increase its value over time. According to Urban Institute - values of homes are more likely to outperform the stock market during longer periods. In the city of New Orleans for instance, experts determined that property values have increase since pre-Katrina levels. Throughout the nation, overall property values continue to rise. According to Zillow, within the last year alone, property values have increased by 4.8% apprx.
#2 Little to no capital gains tax
Unlike investment properties, the sale of your personal home can be shield from taxes. According to the tax law, individuals who sale their home for a gain of $250,000 or less are not required to report the sale on their tax return. In addition, those who are married, they are able to exclude $500,000 from the sale of their personal home. Keep in mind, individuals are required to live in the home for 2 out of 5 years with minor exceptions. However, this allows individuals to build wealth through tax free transfers.
#3 Every payment creates equity
Equity is key.
The great thing about a home is each payment allows for one's equity to grow. In essence, you are leveraging your mortgage to build equity and providing a great return. Keep in mind, there are many ways to grow your equity faster.
Refinancing to a shorter duration
Paying more to your principle
Create a pay off plan
Request for PMI to be removed if applicable
#4 Tax Deductible Payments
Lastly, mortgage payments are deductible in many cases. If you are a person who itemizes, you may be able to write off your mortgage interest you pay for the property. Keep in mind, with the recent tax law changes, the standard deduction has doubled, therefore reducing the need to itemized. However, if you are able to itemized, it can reduce your tax burden, thus providing you with more tax savings and the ability to build wealth.