Home ownership is considered part of the American Dream. According to the Federal Housing Finance Agency, House Price Index, US home prices rose an average of 34.61% over a five-year period ending December 31, 2017. On average homeowners saw the value of their investments grow by 6.94% per year during that period. This makes home ownership a good return on investment while providing a place to live.

Many consider homeownership the single greatest investment opportunity available to the average person. When you consider the benefits of homeownership it is a better economic decision than renting as it provides a hedge against inflation in rents over time. Mortgage payments also decline in real terms over time, reducing housing costs as a share of income. For long-term owners, this can result in fairly substantial savings in the out-of-pocket costs required for housing.

But what makes for a good investment? Here are some guidelines to keep in mind when weighing the benefits of home ownership versus renting.

1. Preservation of the principle. If it loses money, it isn’t investing it is gambling. The idea is to make your investment grow in value over time.

2. Leverage potential. One feature of a good investment is the opportunity to fund the acquisition with borrowed money. This limits your risk, yet you get an appreciating asset. By using a little or none of your own money you achieve the leverage. As an added bonus, the cost of the money is a tax deduction.

3. Return on investment commensurate with risk. A balanced portfolio allocates funds to investments with varying levels of risk. If you are going to risk the principal or part of it, it should be a calculated risk with the possibility of large gains.

4. Favorable tax treatment. No point making all of that money if you don’t get to keep very much of it. Homeownership offers better tax benefits than almost any investment. Interest paid on leveraged funds can be deducted from taxable income. Finally, up to $500,000 of profit can be tax free. And you can take the deduction every 24 months, the holding time needed to qualify. The same benefits apply to a second home.

5. Utility. Certain investments can offer more wealth. Some types of real estate may be used to operate a business, grow crops, enjoy for recreation, or storage. But most importantly it the one essential investment that you can live in it. You can choose whether you want to live in the real estate investment or rent it to someone who will be paying back the lender for you.

6. Timing. Buy low, sell high. The value of real estate is not fixed but a reflection of economic conditions, so you may see a gain or a loss in the investment during up or downswings in the market.

7. Satisfaction. One aspect of a good investment is how it makes you feel. A home provides stability, to potential to make money on your initial investment and the one place you are free to do what you want, when you want.

Choosing home ownership over renting comes with many benefits. When you consider all of the benefits of homeownership, it is obvious that renting is rarely a better economic decision than owning and may be a good way to build wealth over time, even for low-income and minority households.

In a study conducted by the Joint Center for Housing Studies, Harvard University entitled, “Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? (Was it Ever?)”, which states, “We find that while there is no doubt that homeownership entails real financial risks, there continues to be strong support for the association between owning a home and accumulating wealth. Importantly, while homeownership is associated with somewhat lower gains in wealth among minorities and lower-income households, these gains are on average still positive and substantial. In contrast, renters generally do not see any gains in wealth.”

Building Wealth by Owning Versus Renting by George W. Mantor | Realty Biz News