The Plunging Price of Castles

By: Joe Pinto

There is an old English proverb that says: 'A man's home is his castle.' It means once you are in your own home you can pull up the drawbridge and you need not answer to anyone. It is a refuge; it is not a rental property where you can be thrown out for making a noise or having a cat. A home is a haven; it is more than an investment portfolio.

So the property market is taking a slight price hiatus... those of us who panic may end up selling our homes and then what will we do with the money? Put it in the bank? Put it into stocks and shares? Is that smart?

Even though house prices have almost doubled in the last ten years, many home owners are groaning about the price decreases that are occurring in some areas.

In fact, some share prices still have not fully recovered from the last stock market crash we saw. In one year, certain infamous stocks plunged from $90.00 per share to $1.00 per share; that made a $300,000.00 investment dwindle to the price of a washing machine! When a share price can go from $68.00 in February to $49.00 in June and then to $27.00 in September, and on down, it makes the realty market look like a pretty good bet.

In fact, owning a home is a completely different type of investment to investing in stocks and shares. Overall, real estate has always grown in value, in spite of interruptions to the profit and loss. When you invest in a property, you can see something tangible that you have bought - usually land and a house. In almost all cases it is your actual place of abode - you are utilizing your money as a home, it is representing a quality of life; it is not just money you have dumped somewhere to accrue savings, as if in a savings account.

If you invested the same amount in stocks and shares you would own a small part of a company, but the company that you have invested in is completely independent of your control. You have no control over your share of the money that you gave to that company. You can sell your stock, but you can also sell your house. With a house purchase, you have some other measures of control over your own funds.

For instance, if you see the interest rate falling, you can go to your bank and change to the lower interest rate. If you see the interest rate rising, you can get a fixed mortgage to lock in the rate. You can evaluate whether or not it is worth paying the penalty if there is one. You can tighten your belt and rent out a room, or sacrifice the rec room and convert it to a studio suite. You can rent out the whole house and move to a small apartment.

There is one thing you cannot do and that is to guarantee the cash value of your house. In this area you have no control. Certain things, like weather (in New Orleans), or war, or - as in this case - Government, will affect the money value of the house.

However, you can improve the value of your home, some renovations and improvements will increase your house value by as much as 80% of your remodeling cost when you sell your home. (The main five renovations that are reported to give this high percentage of returns are: bathrooms, decks, kitchens, vinyl sidings and window replacements).

You can get tax breaks on your home. You can get capital gains tax subsidy, if you make a profit, as well as interest deductions and property tax write-offs all from the IRS.

Housing has almost always beaten inflation by one or two percent (there is only once in the last thirty-five years that it has not). You will probably loose more money, pro rata, selling your RV than you would on selling your home.

Your home is your roof over your head and if you keep the same roof over your head through this storm, you will probably still be ahead of the game. Real estate is a slow profit, you must keep it many years, but in the meantime it has warmed you, sheltered you and given your children the safe freedom of a yard to play in. It is an asset in your life in more ways than mere financial value.

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