Benefits Of Being A Homeowner
Owning a home is a significant milestone for any New Zealander and it has been throughout our history and the benefits of being a homeowner are massive.
Home ownership provides numerous advantages including stability, financial security, freedom, self-expression, leverage and the opportunity to build equity over time.
Home ownership does come with financial responsibilities, but this does not out way the many benefits that owning a home has for individuals and families.
It is unfortunately getting harder and harder for first-time home owners to purchase a home.
The percentage of Kiwis who rent versus owning a home is getting larger. In this article, I want to cover some of the benefits of owning a home versus renting, though the benefits of owning a home are far greater than if you were to rent long-term.
For those who don’t own a home yet, I encourage you not to lose hope and talk to several different professionals to help you get on the property ladder.
When I say property ladder, I mean owning either a home or an investment property. Some Kiwis decide to still rent but own a rental property.
Either way, it doesn’t matter, but what matters is for you to focus on your financial goals and work towards investing in something, whether that be property, shares or other investments.
It may take you 1 year, 10 years or 20 years, but it will be worth it.
Benefits Of Being A Homeowner
What most people think about when purchasing a home is the mortgage payments they must keep up, otherwise they could lose their home to the bank.
However, the biggest payoff for you and your family is that once your mortgage is paid-off, you become the owner without any outstanding mortgage debt and the property is now freehold.
However, if you were renting, you will still have to pay the rent no matter how young or old you are.
This is a massive advantage, especially in your retirement years.
The money that was previously allocated towards mortgage payments can now be redirected towards other financial goals or used for discretionary spending.
You have more flexibility to allocate your funds towards savings, investments, retirement planning, travel, or other lifestyle choices.
Building Equity in Your Home
When you make mortgage payments, a portion of the payment goes towards reducing the principal balance of your loan, obviously, the goal is to reduce the loan to zero.
This allows you to build equity over time, which is the difference between the market value of your home and the outstanding mortgage balance.
Building equity is like saving money for the future, equity can be used for future investments, a business, home improvements, or even as a down payment on a bach.
Building equity also comes from growth in the property market.
As time goes on property and land prices increase across most parts of New Zealand therefore increasing the value of your land and the property you live in.
Have a look at the graph below, this is New Zealand’s median house prices from 1994 to 2022. This type of equity is a big reason why you should try to own a home as soon as possible.
Stability and Security of Home Ownership
One of the primary benefits of homeownership is the stability it provides. Owning a home offers a sense of ownership and allows individuals and families to establish roots in a community and their families.
Unlike renting, homeowners are not subject to frequent changes in rent prices or the possibility of eviction.
Your home is your castle and allows for a place of sanctuary to study, work, play, have fun and make long-lasting memories.
This is not to say you can’t achieve this through renting, however, the difference is the landlord owns the property, not you.
Improvements to Your Home
When you own a home, you have the freedom to personalise and modify the space to suit your preferences.
Unlike renting, where you may have limitations on making changes to the property, homeowners can paint walls, renovate rooms, or landscape the backyard according to their tastes and needs.
These improvements and personalisations allow you to transform your house into a home that reflects your personality and family needs.
Big improvements to your home can also increase the equity/overall value of your home.
It may be a new kitchen, bathroom or even adding an extra bedroom which will increase the value of your home.
Investment Potential
Real estate has historically been a solid long-term investment. While property values can fluctuate, owning a home typically appreciates over time.
This means that if you decide to sell your property in the future, you may be able to sell it for a higher price than what you initially paid, resulting in a profit.
Obviously, you would still need somewhere to live, but you could either be downsizing, moving to another city or even overseas for your reason to sell.
The other option you could consider is turning the property into an investment and renting it out for cash flow.
We would recommend talking to a professional about this as it depends on your situation.
Many mum-and-dad property investors have become what we call accidental landlords, rather than selling their home, they rent it out and purchase another home elsewhere.
Legacy and Inheritance
Paying off your home ensures that you have an asset to pass on to future generations, kids, other family members or even charities.
It can be part of your legacy and provide a financial foundation for your loved ones.
Whether you choose to keep the property in the family or sell it, the equity you have built can serve as a significant inheritance or contribute to your estate planning strategies.
Overall, paying off your home signifies a significant achievement and opens up new opportunities for financial freedom, stability, and flexibility.
The benefits of being a homeowner are vast and we have only covered the main topics however there are many more.
It’s advisable to consult with financial advisors and explore various options to make the most of this milestone and align it with your long-term financial goals.
We are happy to discuss with you to see if we can help you achieve homeownership. It is best to know where you are in your home ownership quest rather than just assuming it’s not possible.
David Windler
Financial Adviser and Mortgage Broker
Director The Mortgage Supply Company