Last month I introduced my answer to a recent National Mortgage Professional Daily post. The question was asked — how are loan officers having success with prospects in this higher rate environment? I started by introducing the social benefits of owning, but I don’t want to ignore the economic benefits, so this month we will shift our focus there. If more people clearly understood them, they would not have to be convinced to purchase. It would always be a priority — even in a higher rate environment. Most Americans aspire to own a home even without this precise knowledge. 

You can separate yourself from the competition by becoming an expert within these concepts, which are more "intricate" than saying things such as, “A home is a great investment.” On the other hand, we need to recognize that owning is not for everyone. Some will never qualify. Others are in situations which may require moves every few years. We can’t let our belief in homeownership outweigh the facts of some individuals’ lives.

If this home appreciates by 50% over a 10-year period, it will have gained $200,000 in value. Invest your $40,000 in stocks? The same 50% gain would be $20,000. I almost laugh when I see comparisons saying that another investment is better than real estate when they don’t take the leverage factor into consideration. On the other hand, a mortgage has carrying costs. But if you don’t have a mortgage, you would be paying rent. Of course, the amount of appreciation can vary, and I have created tables for such comparisons in my Book of Home Finance, which also factors the cost of buying and selling into the equation. By the way, I consider this topic so important that it is Chapter One in the book. It is the essence of home ownership. 

Now there are two costs which are associated with ownership which do not convey to the ownership of stocks or other investments or rent:

• The cost of buying and selling a home. This is a major expense, one which certainly outweighs the commission on purchasing stocks. Putting your money into a CD typically has no fees. However, even when we add these costs into the mix, real estate comes out ahead by a wide margin. And the cost of selling is mitigated by the fact that a certain amount of real estate gains on primary residences is exempt from capital gains taxes, while the growth of stocks is not. Plus, you have to pay tax on the interest you earn from CDs. 
• The maintenance cost of a house. This cost is certainly significant. Over the long run you might increase the cost of a mortgage by 10% or more, depending upon the condition of the home. On the low side would be a new home; on the high side, a “fixer-upper.” And of course, there are some routine maintenance costs you would incur while renting a property. You would not replace a roof, but you might clean the carpets – especially if you have a pet.