Benefits of Owning Your Own Home
* The Best Investment You Can Make
* Income Tax Savings
* Stable Monthly Housing Costs
* Forced Savings
* Freedom and Individuality
* More Space
The Best Investment You Can Make
The price of Hawaii real estate has appreciated tremendously over the past 100 years. We have seen years of 20% appreciation and years of about the same decline. The amount of the appreciation can vary from neighborhood to neighborhood, and region to region, but if you take the entire Hawaii real estate market over the past several decades, it easy to see that appreciation has been tremendous.
While the stock market at times appreciated much more than real estate in one year, a closer look shows that you can make a lot more money on Hawaii real estate than on stocks.
Here's an example. Let's say you bought a $600,000 house in Kailua, and you put 20% down, or $120,000. You got a mortgage for the rest, or $480,000. You have a beautiful new home in Kailua bluffs, and suppose it appreciates at a rate of 5% annually for 5 years. Now we all know that 5% is very low compared to what has actually happened since about 1995, but let's be conservative.
Now 1 year into your Kailua homes, you have earned $30,000 with an investment of $120,000. Your actual "return on investment" would be a whopping 30%. That's right, your Kailua house has earned you 30% on your $120k.
Now you are making mortgage payments and paying property taxes, which are quite low in Hawaii by the way, along with other costs of home ownership in Hawaii. However, remember that the mortgage interest and property taxes are both tax deductible, so the government is subsidizing your home purchase in a way.
If you take that same $120k and invest it in stocks, do you think you'll make 30% on that money in one year? Probably not. It's the power of leverage, and imagine after 10 yrs what you might have!
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Income Tax Savings
Often the largest deduction on a tax return is the mortgage interest. This means that the government is subsidizing your Hawaii home purchase. The mortgage interest can be deducted on your federal tax return, with certain limitations, and Honolulu city and county property taxes can be deducted from with other limitations. Remember that the deductions on your personal residence is usually much greater than an investment property.
For example, let's assume the beginning mortgage balance on your Waikiki condo is $150k at an interest rate of 8%. In the first year you pay $9969.27 in mortgage interest, and you are in the 20% tax bracket, you would save somewhere around $2000 in taxes. Honolulu City and County Property taxes are deductible, too. All property on Oahu pays taxes to the City and County of Honolulu, regardless of what city you live in.
If you use your home for business, you may be able to deduct some other expenses too. Talk to your CPA about all tax issues. The above are just examples that may or may not apply to you.
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Stable Monthly Housing Costs
If the alternative to buying a house in Hawaii is renting one, then you should expect your rent to increase a bit each year, or whenever your lease expires. The nice thing about a fixed rate mortgage is that your payment is the same monthly payment for 30 years.
In 15 years, how much will your rent be? Triple? Quadruple? Also, in Hawaii our property taxes are very low compared to the rest of the nation, so it's not nearly the same impact as states like California, where home owners pay nearly 5 times the property taxes that Hawaii homeowners do.
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Forced Savings
When you buy a house, you are enrolled in an automatic savings account, called equity. You accumulate savings by paying your home loan down a little bit each month, and also your home appreciates.
Even if your home never appreciates one penny, you still gain equity by paying down your home loan. Even if you never do anything else with real estate, in 30 years you can have your home paid off and live rent free!
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Freedom & Individualism
As a renter you are limited on how you can improve your home or make changes. You can't just change the floors if they get old and dirty, because it's not your flooring! Even if your landlord was to allow you to make improvements, you're only going to enjoy the improvements as long as the lease is good. If you move away, you can't take them with you.
Home owners in Hawaii find that home improvement becomes a great way to make money by increasing the value of the home. You can plant big palm trees or paint your house blue or do whatever you want.
Also, as a renter you may be forced to move if your landlord decides to sell the house. You can only count on one year at a time at your residence, which can be very difficult in Oahu, since rentals are often sparse. Even if you have a great house rented in Hawaii Kai, you may find yourself without a home next year! Owning a home means you can stay there as long as you can make the payments.
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More Space
Unless you are going to pay over $4000 a month, a rental in Oahu is going to be a small condo or apartment, or it's going to be in a neighborhood that you don't like. Since investment property in Hawaii usually difficult to break even on as an owner, you will probably have more space if you buy your own home. Apartment complexes in Honolulu are usually pack the units close together to get the maximum number of units into the smallest possible space, which means small cramped units.
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