by Dean Hartman on October 7, 2010
In the house price frenzy of a few years ago, people looked at their home almost purely as an investment with constant growth. Many refinanced their home multiple times extracting equity to buy a lifestyle beyond their means. Many saw fantastic annual rates of return on their investment. The pendulum swung way too far. We forgot the house as a home.
As prices have declined, the house-as-an-investment supporters have run off to their caves, and the proponents of the value-of-a-home camp have charged to the forefront. Everyone is rightfully spouting lower crime, better educated children and stronger family units as the primary reason to own a home today (because of the uncertainty of the timing of the eventual turnaround). But that argument is swinging the pendulum too far the other way.
Your house is both a Home and an Investment.
Yes, buy for all the warm-and-fuzzy reasons. Buy for all the statistical benefits for your children’s chances for a better future. BUT, don’t forget, we also need to maximize the dollars-and-cents reasons too. To do that, you need a few professionals to help you.
- An Accountant – We all know about writing off mortgage interest and real estate taxes, but what else are you missing? You need the counsel of a seasoned tax professional to get the biggest bang for your bucks. Discuss depreciation; explore Alternative Minimum Tax Strategies; document home improvements to minimize Capital Gains Taxes upon sale; find out if the mortgage insurance premiums you are paying are deductible: and strategize around rental income, if applicable. There is much more to your tax return and owning a home that simple interest and real estate tax write offs, and as with any investment, you should check into all the benefits.
- A Life Insurance Professional - It’s obvious, yet overlooked, but I am convinced that you need to protect the asset that is your home with Life Insurance. Many term insurance policies (especially for young people) are fairly inexpensive. While my preference is more towards cash-value, whole life insurance products for their long-term investment and tax friendly results, they do cost more. Finding a knowledgeable and trustworthy insurance professional is important.
- A Disability Insurance Professional - It might be the same person that does your life policy, but disability insurance covers you in the unfortunate circumstance where you are unable to work because of a disability. This occurs too frequently to be ignored. You should look at the costs and weigh it as an option.
- An Estate Attorney – You need to have a Will, a Durable Power of Attorney and A Health Care Proxy. Owning a home makes it a necessity. If you have children, you are not being a responsible parent, if you don’t have these items. Make sure your attorney SPECIALIZES in this field to avoid mistakes. Explore certain trusts to insulate the assets in conjuncture with Long Term Health Care Issues, as well.
You should also look for a financial planner to craft your retirement strategy. Your home is a key component to your overall net worth, today and in the future. Your home is typically your largest asset. Treat it with the seriousness it deserves.