Real estate can be a great investment vehicle for building long-term wealth. Here are just a few of the ways owning real estate can work to boost your overall wealth and net worth.
Appreciation
Real estate appreciation is the increase in value of a property over time. Several factors can affect the appreciation of a property, such as location, supply and demand, economic conditions, and improvements made to the property. In general, real estate tends to appreciate over time due to inflation and population growth. As the population increases, demand for housing grows, and as supply remains limited, prices go up. Even in a down market, most of our homes at this stage are not depreciating. They might be staying stable, or some might slightly depreciate, but we’re not really seeing that in the Portland Metro area. We might be across the country but not our area. In a normal year real estate appreciates about 4% on average. During the pandemic some homeowners saw appreciation as high as 17-19% which is not normal. But 4% that’s a good average and overtime is what most people see on their homes.
Principal Reduction
Principal reduction is the process of paying down the amount owed on a loan, such as a mortgage. When a homeowner makes a mortgage payment, a portion of the payment goes toward paying down the principal balance, while the rest goes toward paying interest. Over time, as the principal balance is reduced, the amount of interest paid on the loan also decreases. This can result in significant savings in interest charges over the life of the loan. Additionally, as the principal balance decreases, the homeowner’s equity in the property increases. Equity represents the difference between the home’s value and the amount owed on the mortgage, and it can serve as a source of wealth for homeowners. By reducing the principal balance on their mortgage, homeowners can build equity and create wealth through appreciation in home value, as well as potential cash-out refinancing or home equity loans in the future.
Tax Deductions
Homeownership can provide significant tax benefits that can boost your overall wealth. For example, homeowners can deduct mortgage interest and property taxes on their federal income tax returns. This can result in substantial savings, especially during the early years of a mortgage when the majority of the payment is applied to interest charges. In addition, homeowners can deduct certain home-related expenses, such as home office expenses. These tax benefits can help reduce the overall cost of homeownership and free up additional funds that can be invested or saved for other financial goals.
There are a lot of ways to build wealth through real estate! Our team does different classes on real estate topics like wealth building, mortgage hacks, home buying, investing etc. See our upcoming class schedule here.
PNW Real Estate Blog 
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