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The Value Of Homeownership in Paradise

080314-HOMESRecent increases in housing prices can be great for Oahu’s owners or recent buyers because they bring instant equity to their home, but for prospective buyers, entering a surging market may appear to be a little intimidating.

But by looking at past Oahu home prices, the picture becomes less daunting. Ten years ago, the median price of a single-family home was $460,000, and 10 years before that (in 1994), it was $360,000. Certainly there are price dips and peaks, but over time, historically, the value of real estate has gone up.

The benefits to homeownership are many, and based on the bidding wars taking place in many neighborhoods on Oahu this summer, buyers here understand those values and are willing to do what it takes to purchase a home for their families. Consider this: If as a renter, you typically hand over $1,500 a month in rent to a landlord (which adds up to $18,000 a year), you’re subsidizing someone else’s mortgage — in other words, your landlord is building equity with your money!

Maybe it’s time to buy your own home.

There is a lot of pride in homeownership — you can paint it, decorate it, remodel it, fix it up just the way you want, plant a vegetable garden or even bring home a new puppy.

“The appeal to renting, of course, is that anytime something needs fixing, you call the landlord,” says Joy P. McLaughlin, Senior Vice President of the Residential Real Estate Division at First Hawaiian Bank. “Taking on debt and budgeting for a mortgage can seem daunting.”

But if you sit down and weigh the benefits, there are significant advantages that can tip the scale.

The tax savings from owning your own home can be significant. Your mortgage interest will likely be tax deductible (consult your tax advisor) — and those tax savings could help to pay a large chunk of your mortgage payment.

McLaughlin says the interest being tax deductible is one of the longstanding draws to buying a home, along with today’s low mortgage interest rates — which means buyers are getting more for their money.

“Interest rates are so low right now, that affordability is likely higher than it will be five or 10 years from now,” says McLaughlin. But there is more to owning your own place than that.

“I believe the local buyer will want to live somewhere they can have friends over and not have to worry about what their landlord will think,” she says. “And they don’t want to have to worry about having to move if the place they’re renting gets sold.”

Another of the big draws to owning a home is to have a stabilized housing expense for the next 30 years. Most mortgages have a fixed interest rate, so monthly payments remain the same. On the other hand, rental costs trend upward (they are expected to continue to rise in 2014, according to the National Association of Realtors) and when the term of your lease ends, you may be faced with the prospect of a rent increase or having to move.

Homeownership can make financial sense. Unlike stock market investments, where you are required to pay 100 percent of the purchase price upfront, you can buy a piece of real estate with as little as 10 or 20 percent down. You use leverage to purchase your home, yet you own and realize 100 percent of the appreciation value. Indeed, many homes are sold before they are ever paid off. Not to mention, you get to live in your investment.

McLaughlin says one of the biggest roadblocks to buying a home today is fear.

“Maybe not fear due to job security, but ‘Is it a good investment?’ type of fear,” she says.

So if the ability to lock in a fixed monthly payment, build equity as property values increase and realize tax benefits aren’t enough, then consider this: Once the mortgage is paid off, you’ll have less financial obligations in your retirement — unlike renting.

McLaughlin says, for people who plan to stay in a home for only a few years, or have insufficient cash for a down payment or are not sure of their financial security, renting may be the better option.

Buying a home has to do with lifestyle, timing and opportunity.

“It can be very rewarding — both financially and to ensure your children have a piece of Hawaii in the future,” says McLaughlin.

“Like buying a car, one must prepare, research, understand the costs and know what they are buying. But when you take those steps and buy that one car that makes you feel good driving it, there is no better feeling. That’s how I look at homeownership.”

Talk to First Hawaiian Bank today to get prequalified and see how home ownership can be within your reach.

The information contained in this article should not be considered as tax advice. Please consult with your tax advisor regarding tax considerations.

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