Question 1: From Ch. 9: Why is a home a good inflation hedge? Should a home be included as an asset if its occupants arent sure they could sell it? Explain.
Student 1:
An inflation hedge refers an investment that is considered to protect the decreased purchasing power of a currency that results from the loss of its value due to inflation (Chen, 2020). The hedge generally involves investing in assets that is expected to maintain or increase its value over a specified period of time or may decrease in value less rapidly than the value of the currency.
Home is widely considered an inflationary hedge because the risk of home is moderate and it is a highly effective investment that has favorable return potential (Altfest, 2017). For example, if the dollar loses value from the effects of inflation, home tends to become more expensive since the house would likely rise in value as would the higher cost of building new homes. Moreover, another advantage of purchasing home is government provides tax benefits for a homes interest and property tax deductions (Altfest, 2017). Also, there may be no tax on the gain from a homes sale. For these two reasons, purchase of a home has tax benefits and its continued increase in the value, the home deserves its reputation as a good hedge against inflation.
Question 2: From Ch. 9. Why is the home often a better investment than renting? Under what circumstances would renting be preferred?
Student 2:
Why is buying better than renting:
Purchasing a house is no small expense as it comes with recurring property taxes and insurance payments along with the regular payments. Although putting the cost aside, there a many benefits. Keeping in mind when one’s property may come to a point where it is worth more than one paid for it and one will move on at a profit. Paying off one’s home to live mortgage free sets one up for a comfortable retirement. Buying versus renting is a very individual decision but following are reasons why home often is a better investment than renting: Owning a home allows one to build wealth to purchase future homes Buying could help in increase one’s net worth that renting can not. One can aim to lower their living expenses some day. Buyer can have a passive income sometime in the future. No one can sell it out under the owner Buyer gets to make it their own It becomes more stable and familiar One can get a great deal in the future when the value increases.
Preference to rent:
Although owning a home has its own benefits renting has advantages too. Rates of home ownership are high in U.S. so it is not for everyone which is why for some people renting might make more sense. Unlike homeowners renters don’t have to pay for maintenance and repairs out of their pocket.Renting requires a security deposit but for buying a house a sizable amount of down payment is required. Renters are also privileged with great deals and amenities in less utilities, for instance pool, gym which are otherwise expensive. Below are the advantages of renting instead of buying: No maintenance cost or repair Access to amenities No real estate taxes No down payments More flexibility on where to live Flexibility to downsize Fixed rent amount Lower insurance cost
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