1 – House Price Appreciation
The average rate of house price appreciation in the US over the past 20 years has been over 3% per year. This means that if you bought a vacation home 20 years ago for $100,000, it would likely be worth over $180,000 today. If you used a 20% down payment your $20,000 investment would have yielded more than an 8% annual rate of return.
2 – Ability to Rent Out the Property and/or Save Money on Hotels
You may be able to rent the property for part of the year that you are not using it. Additionally, you could save some money on hotel bills if you vacation in your own property instead of vacationing in a hotel. These factors could help you to reduce your cost of ownership.
3 – Step-up in Tax Basis
If you keep the property for your entire lifetime, your heirs will likely receive a “step-up in basis” when they inherit the property. This means that their tax basis “steps up to” the future value of the property. In our example above, if the property is worth $180,000 when your heirs inherit it, their tax basis would be $180,000. This means that they could sell the property and pay absolutely nothing in capital gains taxes.
PLEASE NOTE: THIS ARTICLE WAS COPIED WITH PERMISSION FROM THE CMPS INSTITUTE. IT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED TAX OR FINANCIAL ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION.