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Why owning matters: the financial view

Owning vs renting

There’s a reason home ownership is part of the American Dream - for most people, it ends up being the smartest financial decision they make. We’ve all heard that buying a home is a good investment, but what does that really mean? (You’ve probably also heard that you need 20% to buy, which as it turns out is simply false.)

To help explain the financials of owning, we’re is the story of our CEO Yifan, who bought her first home in Beacon Hill, Seattle in late 2016.

Owning vs Renting

Monthly paymentsThe monthly financial benefits of ownership
  • Tax deductions

    It’s a little-known fact that you can deduct interest paid on your mortgage from your federal tax return. These deductions are often thousands of dollars per year.

  • Equity

    A large chunk of your monthly payment goes towards the ‘principal’ - essentially, buying more of your home from the bank. Think of this as more like investing than spending money on rent.

  • Rental / Airbnb income

    Owning a home opens up an incredible passive income stream - the ability to rent out one or more bedrooms and generate passive income.

Even without appreciation, Yifan saved over $2,100 every month living in her own 3-bedroom townhouse vs renting a small, 1-bedroom apartment. Crazy, right?

Appreciation & Leverage

Now let’s talk appreciation, which just means an increase in value, and refers to the fact that historically, property values have increased over time. The national 10-yr avg increase in home prices is roughly 2%. In ‘hot’ markets, appreciation can be upwards of 10%.

10-year appreciation
Two percent
Five percent
Ten percent

In fact, Seattle home prices on average rose 14% over the last 12 months, which means Yifan’s townhouse has gained nearly $100,000 in value. This is a unique market - but as you can see, appreciation is a force to be reckoned with even under normal conditions.

The same can be true of the stock market, right? Why not continue renting, and instead of spending your savings on a down payment, invest them in stocks? This is where the powerful concept of leverage comes in - basically, the idea that, strong even if you only own 5, 10, or 20% of your home, you get 100% of the value of appreciation.

To illustrate, let’s say you put $25,000 down on a $500,000 home (a 5% down mortgage). Even in a conservative market with only 2% appreciation, in 12 months that home’s value will be $510,000. That appreciation is 100% yours, not the banks - so, from your initial $25,000 investment, you’ve gained $10,000, a whopping 40% annual return - far greater than any alternative investment vehicle. That’s the power of leverage, and the reason that owning in appreciating markets is a gamechanger.

The problem with waiting

Home price increase

For the vast majority of us who don’t have the cash for a down payment, the timeline to save can easily be 5-10 years. Unfortunately, more often than not, we end up ‘running in place’, with home prices increasing faster than we’re able to squirrel away funds.

If I had waited even just 12 months to buy, not only would I have lost over $26,000 in housing costs, my target homes would have been out of my price range and I would have had to buy further away from the city.

This is why timing matters, and this is why we created Loftium.

How we can help

If you’re an aspiring homebuyer with steady income but a gap in savings for the down payment, you can use Loftium to buy now. We exist to help you tap into all the financial benefits of owning, participate in the appreciating real estate market, and simply be happy living in your own home.

To see how we can help you become a homeowner, sign up now.

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