Real Estate as a Savings Account Articles | Real Estate

By: Erion Shehaj

I know by now you might be a little perplexed by the title but do not worry as it will all be clear in the end. First, let's start by a quick question: Let's say that your bank representative called you one day and told you that if you opened a savings account in the bank today, they would put $20,000 in it with the stipulation that you couldn't touch it for 2-5 years. Would you take that deal? In a heartbeat, right?

Well, buying a home right is in a way the same proposition as the pretend example above. "Right" being the absolute operative word in that sentence. "Buying right" simply means buying a property below its true market value. Some of the reasons why a property may be below market value is as a result of a distress situation such as divorce or pending foreclosure. Other reasons may be the need for repairs or imminent job transfer. In other words, any time the seller of the home (be that an individual or an institution like a bank or HUD) must liquidate the home quick and will take a lesser price than the true market value of the property it is a good opportunity to buy a property right.

What happens when you do buy a property right and what does that have to do with savings accounts? Take the following example for instance: If you purchase a property that is worth $200,000 for $180,000, you are in effect realizing an equity gain of $20,000. Put simply, you just made $20,000 with the stipulation that you cannot touch it until you sell the home later. In that context, this home that you just bought is serving as a locked savings account the money in which you earned by simply making a smart purchase decision. In addition to the instant equity, you also gain the benefits of home value appreciation for every year you own the home. Most importantly, if you stay in the home as your primary residence for two years or more, you can avoid paying taxes on up to $500,000 of profit depending on your marital status. How about that: Instant Equity, Value Appreciation and No Taxes! Sounds pretty good to me.