Why Real Estate Is Still a Tool to Build Wealth in 2019 and Beyond

Whether you’re looking to buy a home in a Near North high rise or you hear the Bungalow Belt calling your name, research has shown that owning real estate can be one of the smartest investments there is for building wealth, and securing your and your family’s long-term financial outlook. 

Homeownership can be a key way to start building up your wealth, particularly when you look ahead to the future. In fact, did you know that, historically, current and future homeowners trust real estate as a worthy long-term investment tool more than any other investment vehicle? And this number is only growing. In 2011, a solid 19% of U.S. residents thought of real estate as the smartest choice to put their money; in 2019, this total has increased to a whopping 35%, according to a report from Keeping Current Matters

How Real Estate Creates a Reliable Path to Wealth

If you purchase a home with a mortgage, a portion of every payment you make each month goes toward paying down your loan. In the long term, this means that each time you make a monthly payment, you’re steadily building your net worth by building equity in your home. In time, this creates what the National Association of Realtors calls “housing wealth,” which “is built up over time via the home price appreciation and the principal payments that the homeowner makes on the loan.” 

In other words, as the market appreciates, your home may be steadily gaining value, and you may be steadily owning more of it, unencumbered - putting you in a better position to leverage your property as an investment or make a profit when it’s time to sell down the line. In contrast? When you rent, your money flies out of your pocket, and goes toward helping your landlord build their wealth. 

At the same time, when you secure a fixed rate mortgage, or a variable rate mortgage with a long fixed period, you’ll be “locking in” the monthly cost of your most substantial expense. This can provide predictability and financial stability, particularly in the face of a changing economy. On the flip side, rental costs may rise year to year or even month to month, even as you see none of the benefits of appreciation or inflation. While your mortgage payment may be the same in fifteen years as it is this month, your monthly rent payment most certainly will not be. 

In other words, not only does owning a home become a fixed expense, but it also empowers you to gain money in the form of equity and resale value, as the years go on. And that’s not all. It’s important to consider some of the other financial benefits and considerations that tend to go hand-in-hand with homeownership, including: 

  • Tax Benefits 
    Not only will your home gain value over the years, but you’ll be able to save through state and local tax breaks that benefit homeowners. While it’s important to keep in mind that tax law can change, and often does, Illinois currently allows for homeowners to write off certain parts of their home expenses on their state taxes. In many cases, homeowners will be able to deduct mortgage payment interest, as well as property tax payments, from their income tax.  
  • Enjoying ‘The Good Kind’ of Inflation
    Low interest rates and tax breaks can make owning a home a financially smart move over time, but what about inflation? While the term usually has a negative connotation, real estate is a steady and stable investment wherein economic inflation can often actually work in a homeowner’s favor. As this great article from Forbes points out, a homeowner’s mortgage payments and property taxes will largely stay the same over the years and, “when you combine this with rising rents and home values (due to inflation), you start to see big results.”
  • Retirement Income for The Later Years
    Owning a home provides you with a usable asset, and can allow you to take advantage of tax incentives and other short-term financial benefits. Most importantly, one of the best parts about homeownership is that you’ll be paying yourself in the long run, rather than a landlord or property company. Owning a home is a way to build equity, which can be leveraged as a “nest egg” or used help bolster your retirement fund, including your 401(k) and IRA accounts. Retirement can seem like a far away aspiration, but the steps you take now can lead to ongoing financial growth and stability, even when you’re no longer working. As Keeping Current Matters has noted, one prominent study discovered that “a renter 65 years old or older has a net worth of $6,710. Meanwhile, a homeowner 65+ years old has a net worth of $319,200.” This equity gap can mean big lifestyle differences, especially in retirement. 

So, as we’ve discussed, real estate can be a powerful long-term investment, and a tried-and-true path to wealth building in the future. However, in order to trust that real estate is a smart way to invest your time and money, it also helps to look at the most recent and on-going market and lending trends. Gaining a clearer perspective on the short-term can help you plan for the long. One major narrative taking shape in 2019 is that… 

Low Interest Rates Give Incentive to Buy Now

One factor that could make purchasing a home particularly enticing in today’s market is low interest rates. For homebuyers, keep in mind that there are many different mortgage products and loans out there, including FHA (Federal Housing Authority), VA (Department of Veterans’ Affairs), ARM (Adjustable-Rate Mortgage), and other loans. There are associated benefits with each, including one of the most common and financially lucrative types of loan, the 30-year fixed. 

With a 30-year fixed rate loan, a homebuyer locks into a consistent interest rate and steady monthly payments for the life of their three-decade repayment plan. A 15-year fixed rate offers similar benefits, over a shorter span of time. There are also “hybrid” ARM products, where a buyer may lock into a fixed interest rate for a number of years, before converting to a variable rate for the remainder of their term. With a mortgage, you commit to an interest rate until you pay off your loan or refinance - which can offer stability, and cost savings, over time, making your payments more predictable while also sparing you from the ups and downs of the economy at large. 

While interest rates are constantly in flux and change daily, overall trends and comparisons shows consistently lower rates than the year prior, as of summer 2019. 

According to recent data from Forbes, “interest rates are currently below 5%.” As of the time of this writing, the most recent nationwide interest rate sits at 4.39% for a 30-year fixed mortgage, per Mortgage Daily News.

Here’s how Joel Schaub, vice president of mortgage lending at Guaranteed Rate, puts it: 

“With all the talk in the last month about the [Federal Reserve] cutting rates, we have already seen mortgage rates come down more the last two months than any other two-month period in the last 10 years.” 

These are exciting prospects, especially for prospective buyers who are looking to wisely invest in their future. Locking into a low mortgage interest rate now could mean significantly lower monthly payments down the line. 

The Bottom Line 

Owning a home can be one of the smartest investments to make during your life. Not only is property one of the few usable, and most stable, assets there is, but you can actually witness your net worth grow over the years as you build equity and homeownership becomes a source of passive income. 

Whether you’re ready to start the search for your first place or you're in the market for your next real estate investment opportunity, don’t hesitate to drop the Real Group team a line! We have the skills and the expertise it takes to find you the perfect Chicago home, while making the process easier at every step of the way. 

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